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Pak spiralling into economic crisis may concern India; know why

Written by  Shgun S -- February 22nd 2023 01:41 AM
Pak spiralling into economic crisis may concern India; know why

Pak spiralling into economic crisis may concern India; know why

Economic situation in Pakistan has been deteriorating, bringing back memories of Sri Lanka crisis. The current situation in Pakistan is the most difficult faced by the country in the last two decades, according to South Asia Press.

The country is facing economic and political crises as well as a soaring number of terror attacks along the northwestern areas.

With the Pakistani rupee at an all-time low and fuel prices skyrocketing, the country has been struggling to meet its citizens' basic needs. But why is Pakistan in such a precarious situation? And should India be concerned? Let's dig into Pakistan's economic crisis.

According to the report, inflation in the country stood at 24.5 percent in December 2022, nearly doubling from 12.3 percent the previous year, and the common people were the most affected by the high flour prices during the country's worst-ever food crisis.

Many areas in Khyber Pakhtunkhwa, Sindh, and Balochistan provinces have seen grain and flour stampedes. Analysts believe the crisis will soon engulf petroleum products and other basic necessities.

According to South Asia Press, some experts also suggest that petrol and diesel rationing may occur in the next two to three months, affecting trade, industry, and even the agricultural sector, which requires diesel during harvesting season.

World Bank has described Pakistan as south Asia's "weakest economy." Reasons that pushed Pakistan to this stage include -

  • Inflation

In Pakistan, inflation was at a 48-year high in January, as thousands of containers of food, raw materials, and equipment were stuck in ports after the cash-strapped government curtailed imports. It recently dropped to 27.55 percent.

Increased inflation generally has a negative impact on a nation's currency's value. This is so because rising inflation devalues a currency's buying power, which makes it less valuable in relation to other currencies. That brings us to the issue at hand - the Pakistani rupee.

  • Debt

Pakistan's total external debt stocks soared to $130.433 billion by the end of 2021, up from $115.695 billion at the end of 2020,  World Bank stated. According to CEIC data, the country's external debt reached $126.9 billion in September 2022.

Pakistan's debt-to-GDP ratio is currently approaching 70%, and 40-50 percent of government revenue is set aside for interest payments this year, according to Reuters. According to Mint, Chinese loans account for roughly $23 billion of Pakistan's $27 billion in bilateral debt.

  • Imran Khan's fault?

A number of analysts, including the current Shehbaz Sharif-led regime, have blamed the previous Pakistan Tehreek-e-Insaf (PTI) government led by Imran Khan for the country's worsening financial situation.

Khan's mismanagement of the economy resulted in "acute financial crisis, inflation, unbridled Dollar flight, and ample foreign and local debts," Finance Minister Ishaq Dar said.

Khan's decision to wait to contact the IMF, despite economists' recommendations that the government seek a bailout package back in 2018, was one of his most criticised moves. Amid the Russia-Ukraine war, Imran Khan's government's reluctance to hike prices of fuel costs also drew flak from experts.

Why India should be worried?

  • According to analysts, there would likely be an influx of refugees from Pakistan into India. An activist recently stated that residents of POK (Pakistan-Occupied-Kashmir) are ready to join India, reported ANI. This will lead to law and order issues in India.
  • The crisis may also have an impact on India's exports to Pakistan.
  • It is also speculated that Pakistan's deep economic crisis will increase Chinese influence in the country. This could have an immediate or indirect impact on India, which has recently been at odds with China along the Line of Actual Control (LAC).
  • According to analysts, if Pakistan turns into a failed state, terror networks will increase their influence within Pakistan, having the potential to directly harm India's interests.



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