Pakistan is facing a severe economic crisis with a weak economy, inflation, energy supply problems, and terrorism. The nation is on the brink of national bankruptcy as no country is willing to bail it out. The IMF is in Pakistan to discuss a crucial cash injection as the crisis worsens.
The value of the Pakistan Rupee has plummeted due to the country’s loose control on the currency and efforts to rein in the black market in US dollars. The situation in Pakistan is similar to Sri Lanka, which defaulted on its debt last year and suffered from a shortage of food and fuel. The experts predict that the situation in Pakistan could get worse and lead to defaulting on its debt. The country is also grappling with the aftermath of devastating floods. The IMF visit is crucial as Pakistan has less than $3.7 billion in the State Bank, enough to cover only three weeks of imports.
The IMF loan may not be enough without structural reforms and fiscal discipline. The major reasons for the crisis include weak political leadership, lack of reforms, too much debt, high inflation, weak foreign exchange reserves, lack of investment, trade deficit, and dependence on foreign aid. India is also at risk due to the situation in Pakistan as the leadership may take unpredictable actions ahead of the elections and terror attacks may spiral out of control. A former Indian envoy to Pakistan stated that trading with India could be a solution for Pakistan’s energy shortage.
Effect on India
India faces a potential risk due to the current situation in Pakistan, according to officials. The leadership may take unpredictable actions in an attempt to distract from domestic issues ahead of elections. A former Indian envoy to Pakistan suggests that there is a possibility of the Pakistan army delaying elections to give the civilian government time to implement IMF reforms. The lack of energy resources may push Pakistan to trade with India. Another major concern for India is the potential escalation of terrorism, with a 28% increase in terror attacks in Pakistan in 2022. In an attempt to maintain control, Pakistan may unleash terrorists into India.