The inflation rate in Pakistan could jump as high as 70 percent if the South Asian economy defaults.
Ex-Finance Minister Hafiz Pasha said in an address to members of the Pakistan Industrial and Traders Associations Front (PIAF) that in the event of a default, Pakistan’s inflation rate could reach 70 percent. Even if the International Monetary Fund (IMF) loan is reinstated, inflation will still reach 35 percent due to the lender’s stringent conditions.
He explained if the government adopts key reforms agreed upon with the IMF, such as the fuel levy of Rs. 50 per liter, a 40 percent hike in electricity tariffs, a double gas tariff, and a shift to a market-based exchange rate policy, inflation could exceed 35 percent. If the government fails to implement the agreed-upon reforms, he warned that Pakistan will be out of the IMF program which would effectively dry up the country’s capital.
Pasha predicted that Pakistan’s economy will remain in severe economic stagnation in 2023. He lamented Pakistan’s dependence on costly foreign loans. The country’s debt in the first 65 years was $65 billion, which has now increased to nearly $130 billion over the next seven years after Pakistan increased reliance on high-interest, difficult-to-repay loans, he added.
While the default gossip has made big moves during the ongoing fiscal year, the expectation is that Pakistan is likely to remain default-free for the next 6 months in the event that the IMF releases its pending bailout to the country.
Bloomberg Economics predicted last week that the IMF will release the remaining bailout totaling $2.6 billion. Subsequently, the lender’s approval will help unlock $5 billion in financing from bilateral creditors and $1.7 billion from the World Bank. All funds will be used to cover $5.9 billion in debt payments and estimated deficits by the end of the current fiscal year.
