Pakistan's Endless Economic Crisis

Bloomberg Originals
13 Oct 202309:38

Summary

TLDRPakistan faces a dire economic crisis with record inflation, energy prices, and terror attacks, leading to mass protests and a potential bailout need. The IMF fears the consequences if it fails, as the country struggles with unsustainable debt and low tax revenue. Political instability, military influence, and the aftermath of natural disasters further complicate the situation. Despite the bleak outlook, some Pakistanis remain hopeful for a future that requires addressing civil service, public sector reforms, and fostering economic stability.

Takeaways

  • 📉 Pakistan is facing severe economic challenges, including the worst inflation in Asia, mass protests, and high energy prices.
  • 💣 The country's economy is in a downward spiral, leading to the need for a bailout to avoid economic collapse and potential global chaos.
  • 📈 Historically seen as a potential economic rival to India, Pakistan is now falling significantly behind due to its economic struggles.
  • 🏦 Pakistan is caught in a cycle of borrowing, with the IMF being a critical lifeline to prevent the country from sinking financially.
  • 📊 The inflation rate in Pakistan has reached a record high of 36.5%, marking the highest increase in nearly 60 years.
  • 🛑 Businesses are suffering, with customer numbers drastically reduced, and the situation is worse than during the COVID-19 pandemic.
  • 🚢 Desperation is driving people to risk their lives to escape to Europe, and many are turning to loan sharks due to the economic crisis.
  • 💔 The country is still reeling from a devastating flood that caused $30 billion in losses and damages, with no funds to address the aftermath.
  • 🏦 Pakistan's tax-to-GDP ratio is critically low, hindering the country's ability to fund public services and state expenditures.
  • 🔄 The country's debt is on the brink of sustainability, with outflows exceeding inflows, and a lack of export and foreign direct investment.
  • 🤝 Historically, remittances, bailouts, and financial support from China and Saudi Arabia have filled Pakistan's financial gaps, but this is not a sustainable solution.

Q & A

  • What is the current economic situation in Pakistan?

    -Pakistan is facing a severe economic crisis, with the worst inflation in Asia, mass protests, record energy prices, and an increase in terror attacks. The country's economy is sinking, and it is seeking a bailout.

  • How has Pakistan's economic standing compared to India changed over time?

    -Pakistan was once considered a potential economic rival to India, but it is now falling further behind due to its economic struggles.

  • What role does Pakistan's military play in the country's government policies?

    -Pakistan's military is seen as holding significant sway over government policies, often exerting influence from behind the scenes.

  • What is the current inflation rate in Pakistan, and how does it compare to historical data?

    -Pakistan's year-on-year inflation has hit a record level of 36.5%, marking the highest-ever increase in nearly 60 years.

  • How has the economic crisis affected the daily lives of Pakistani citizens?

    -The economic crisis has led to a decrease in customer traffic for businesses, increased difficulty in paying rent and bills, and a general sense of concern among the population.

  • What measures are being taken to address the economic crisis in Pakistan?

    -Political parties have promised to undertake difficult reforms to put the country on a sustainable financial footing, but past attempts have been unsuccessful.

  • What is the impact of climate-related disasters on Pakistan's economy?

    -Pakistan has suffered significant losses and damages, estimated at $30 billion, due to natural calamities such as flooding, which the country lacks funds to deal with.

  • What is the current state of Pakistan's tax collection system?

    -Pakistan has a very low tax-to-GDP ratio, which is a significant problem as it hinders the funding of public services and state expenditures.

  • How does Pakistan's debt situation compare to its economic inflows and outflows?

    -Pakistan's debt is described as borderline sustainable, with its inflows not covering its outflows, and the country not exporting enough or attracting sufficient foreign direct investment.

  • What are the views of Nadeem Ul Haque, a former IMF worker, on the IMF's policies in Pakistan?

    -Nadeem Ul Haque is skeptical about the IMF's policies in Pakistan, describing both Pakistan and the IMF as addicts locked in a 'death dance'.

  • What are the challenges faced by Pakistan's political system and how do they affect the country's progress?

    -Pakistan's political system is fraught with instability, with the military directly ruling for almost half of the nation's history and retaining outsized influence, which some argue hinders overall progress.

Outlines

00:00

📉 Economic Crisis in Pakistan

Pakistan is facing an unprecedented economic crisis characterized by the worst inflation in Asia, mass protests, record energy prices, and a surge in terror attacks. The country, once seen as a potential economic rival to India, is now struggling with a sinking economy and is on the brink of seeking a bailout. The IMF is concerned about the potential chaos if Pakistan fails, as it would have global implications. The inflation rate has hit a record high of 36.5%, marking the highest increase in nearly 60 years. The situation is further exacerbated by the aftermath of a devastating flood that caused $30 billion in losses and damages. Despite political promises of reforms, the country's low tax-to-GDP ratio, lack of exports, and insufficient foreign direct investment are causing concern about the sustainability of Pakistan's debt.

05:04

🏛 Political Turmoil and Military Influence

The political landscape in Pakistan is fraught with instability, with the military exerting significant influence over government policies. The tenure of Imran Khan's government was abruptly ended, and his party, PTI, is now facing a crackdown, with leaders being tried in military courts. The caretaker government, which took over in August 2023, is tasked with ensuring fair punishment for those involved in violent protests. The country's economic woes are compounded by the need for tax reform, privatization, and a reduction in state-owned enterprises' losses. Despite the bleak outlook, there are calls for unity and efforts to convince the nation's best and brightest to stay and contribute to Pakistan's future. The role of the military in Pakistan's progress is a contentious issue, with some seeing it as a hindrance to overall progress while others view it as the only institution capable of driving change.

Mindmap

Keywords

💡Inflation

Inflation refers to the rate at which the general level of prices for goods and services is rising, and subsequently, the purchasing power of currency is falling. In the video's context, Pakistan is experiencing the worst inflation in Asia, with a record year-on-year inflation rate of 36.5%, which is the highest in nearly 60 years. This economic phenomenon directly impacts the daily lives of Pakistanis, making it difficult for them to pay for rent, bills, and maintenance.

💡Mass Protests

Mass protests are large-scale public demonstrations expressing dissent or objection to current conditions or policies. The script indicates that Pakistan is facing mass protests, which are a direct response to the country's economic crisis and the hardships faced by the population due to inflation and other economic challenges.

💡Energy Prices

Energy prices refer to the cost of sources of power such as oil, gas, and electricity. The script mentions record energy prices in Pakistan, which contribute to the country's economic difficulties and add to the financial burden on its citizens, affecting their ability to maintain a basic standard of living.

💡Terror Attacks

Terror attacks are acts of violence intended to create fear and advance political, religious, or ideological objectives. The video script points out an uptick in terror attacks in Pakistan, which adds to the country's instability and undermines its economic and social development.

💡Bailout

A bailout is financial assistance given to a country, bank, or company in financial distress. The script discusses Pakistan's need to seek a bailout due to its sinking economy, highlighting the country's reliance on external support to prevent economic collapse.

💡IMF (International Monetary Fund)

The International Monetary Fund is an international financial institution that aims to foster global monetary cooperation, secure financial stability, facilitate international trade, and reduce poverty. The script emphasizes the IMF's role in preventing Pakistan's economic collapse, indicating the country's dependency on such international financial support.

💡Tax to GDP Ratio

The tax to GDP ratio is a measure of the proportion of a country's tax revenue in relation to its Gross Domestic Product. The video script points out that Pakistan has a very low tax to GDP ratio, which is a significant issue as it limits the government's ability to fund public services and state expenditures, contributing to the country's economic challenges.

💡Remittances

Remittances are money transferred by foreign workers to an individual's home country. The script notes that remittances, along with bailouts and direct injections of cash from countries like China and Saudi Arabia, have historically filled the gap in Pakistan's economy. However, the country's inability to export enough and attract sufficient foreign direct investment puts pressure on this source of funding.

💡Political Stability

Political stability refers to a state of equilibrium in a country's governance, with minimal conflict and effective policy-making. The video script highlights the lack of political stability in Pakistan, with the military's outsized influence and a history of direct rule contributing to the country's economic and social challenges.

💡Economic Uncertainty

Economic uncertainty is a situation where there is a lack of predictability in economic conditions, often due to factors such as high inflation, political instability, or external shocks. The script illustrates this through the story of a stock analyst who decides to leave Pakistan due to rampant inflation, a depreciating currency, and an uncertain political environment.

💡Natural Calamities

Natural calamities are severe natural events resulting in significant damage or loss, such as floods, earthquakes, or hurricanes. The video script recounts the devastating impact of a flood that affected one-third of Pakistan, causing $30 billion in losses and damages, and emphasizing the country's lack of funds to deal with such disasters.

Highlights

Pakistan is facing a severe crisis with the worst inflation in Asia, mass protests, record energy prices, and an increase in terror attacks.

Pakistan was once considered an economic rival to India but is now falling further behind.

The country's economy is sinking, leading to a need for a bailout.

Pakistan is trapped in a cycle of borrowing with no apparent end.

The IMF cannot allow Pakistan to sink, as it would lead to chaos on a global scale.

Pakistan's year-on-year inflation has hit a record level of 36.5%, the highest in nearly 60 years.

Businesses are struggling with reduced customer visits, even worse than during the Covid pandemic.

Pakistani people are concerned and some are resorting to risky journeys to Europe or borrowing from loan sharks.

Pakistan suffered a devastating flood last year, leading to losses and damages of $30 billion.

Natural calamities are expected to continue, and Pakistan lacks funds to deal with them.

Political parties have promised reforms for sustainable finance, but past attempts have been unsuccessful.

Pakistan's tax-to-GDP ratio is very low, hindering the funding of public services and state expenditures.

Pakistan's debt is considered borderline sustainable, with inflows not covering outflows.

The country lacks sufficient foreign direct investment and relies on remittances and bailouts.

Pakistan needs ideas, rules, and laws conducive to growth, but continues to borrow and build infrastructure without quick growth.

The political system is unstable, with the military exerting significant influence.

Imran Khan's government was removed from power, and his party is facing a crackdown.

Pakistan's first priority is to prevent and counter terrorism from and within Afghanistan.

The country needs to widen the tax net and ensure responsible privatization to stop financial bleeding.

Many Pakistanis, including professionals, are leaving the country due to economic uncertainty and political instability.

Despite challenges, some Pakistanis remain hopeful and believe in the country's potential for progress.

Transcripts

play00:06

Pakistan is in crisis.

play00:09

The worst inflation in Asia,

play00:12

mass protests,

play00:15

record energy prices,

play00:17

and an uptick in terror attacks.

play00:20

You’re talking about a very, very

play00:23

important regional market,

play00:26

regional power.

play00:28

Pakistan’s economy is sinking.

play00:29

It has no option but to seek a bailout.

play00:32

Pakistan was once hailed as a country

play00:34

that could be an economic rival to its neighbor India

play00:39

but it's falling further and further behind.

play00:42

The nuclear-armed country with 240 million people

play00:46

is living on the edge of ruin.

play00:48

Behind the scenes, its military is seen as holding sway over government policies.

play00:54

At the heart of it all, Pakistan is trapped in a cycle of borrowing

play00:59

that appears to have no end.

play01:02

The IMF can’t let Pakistan sink.

play01:04

Pakistan sinks it will be chaos.

play01:06

And the world can’t afford this big a chaos.

play01:16

Now the economic situation in Pakistan

play01:18

has gone from bad to worse.

play01:19

Pakistan’s year-on-year inflation

play01:21

hit a record level of 36.5%.

play01:24

This is the highest-ever increase in nearly 60 years.

play01:29

I’ve been working in this market for the last 28 years.

play01:32

We are in trouble.

play01:34

Paying rent, bills, maintenance. Everything counts.

play01:38

Earlier, 40 to 50 customers used to visit us daily.

play01:41

But now, it’s down to two or three people, only.

play01:45

Even the three years during Covid was better.

play01:51

Pakistani people are very concerned at this point in time.

play01:55

You can see people are hopping onto boats

play01:57

risking their lives to get to Europe somehow or another.

play02:01

People are borrowing money from loan sharks.

play02:04

And we have seen last year, at one point one-third of Pakistan

play02:09

was flooded completely.

play02:11

And it led to losses and damages of $30 billion.

play02:17

I will never forget the climate-related carnage I saw.

play02:22

Lives, homes, livelihoods, schools, hospitals, all obliterated.

play02:29

It’s expected that such natural calamities

play02:32

will continue happening.

play02:34

And Pakistan does not have any funds to deal with it.

play02:38

Ahead of the general elections

play02:40

all political parties have promised to take on politically difficult reforms

play02:45

which will help the country get on sustainable financial footing

play02:49

but none of them have been able to do so in the past.

play02:54

We’ve been here before.

play02:55

And we have seen some of these bailouts actually get halted

play02:59

over failure to meet certain conditions.

play03:01

It is very important that Pakistan sticks to the commitments under this program.

play03:07

Meaning, don’t spend what you don’t have.

play03:11

Be prudent on tax collection.

play03:13

One of the big problems Pakistan has is very low tax to GDP.

play03:19

At the IMF we say if your tax to GDP

play03:22

is below 15%

play03:24

you can’t really quite function

play03:26

as necessary

play03:28

to fund public services and the state expenditures.

play03:33

Is Pakistan’s debt sustainable?

play03:36

It is sustainable but it is borderline sustainability.

play03:43

Pakistan’s inflows just do not cover its outflows.

play03:47

Pakistan does not export enough.

play03:49

Pakistan doesn’t have enough foreign direct investment coming in.

play03:53

Historically, this gap has been

play03:56

filled by remittances, bailouts,

play03:58

and direct injections of cash

play04:00

from China and Saudi Arabia.

play04:09

What we are short of is ideas.

play04:11

What we are short of is rules and laws

play04:13

that are conducive to growth.

play04:15

Unfortunately, we don’t understand that.

play04:16

So we continue to go to beg and borrow.

play04:19

We continue to build roads. We continue to build all these things

play04:22

which really do not give you quick growth.

play04:26

Nadeem Ul Haque worked for the International Monetary Fund

play04:30

for 24 years.

play04:31

Now he’s skeptical about the IMF’s policies in Pakistan.

play04:35

Pakistan is an IMF addict and the IMF is a Pakistan addict.

play04:40

We are both locked in a death dance.

play04:43

The fault lies within.

play04:46

The country’s political system is fraught with instability

play04:51

with the military directly ruling for almost half of the nation's history

play04:56

and retaining outsized influence

play04:59

even when democratically elected governments took power.

play05:04

The entire status quo, the entire political status quo

play05:07

is against me right now.

play05:09

Imran Khan’s government tenure was cut short when he was

play05:12

removed from power in April of last year.

play05:16

The government that replaced him oversaw a crackdown

play05:20

on Khan's political party,

play05:21

whose leaders are now being tried in military courts.

play05:26

The caretaker prime minister has previously said

play05:29

he will ensure fair punishment by law for those involved in violent protests.

play05:34

We tracked down a member of Imran Khan’s political party,

play05:38

the Pakistan Tehreek e-Insaf, or PTI.

play05:42

Can you tell the audience why are you hiding at the moment?

play05:46

There’s been a crackdown on PTI of the sort that unfortunately

play05:52

only happens in countries like Pakistan,

play05:55

with a very clear and singular objective

play05:57

of dismantling the party.

play06:00

If we continue to go down the same path that we are going,

play06:04

if we think we can fix this country without fixing the civil service,

play06:09

without fixing public sector contracts,

play06:12

without opening up to the free market,

play06:14

without political and economic stability,

play06:17

I don’t want to imagine

play06:20

what 20 to 30 years down the line will look like.

play06:25

Pakistan has had a history of violent terror attacks.

play06:29

Since the Taliban took over Afghanistan in 2021

play06:34

the situation has gotten much worse.

play06:38

Pakistan’s first priority is to prevent and counter all terrorism

play06:43

from and within Afghanistan.

play06:46

Kakar’s caretaker government took over from Shehbaz Sharif in August 2023.

play06:52

We spoke to Sharif’s former economic adviser.

play06:55

We have to widen the tax net.

play06:58

We have to ensure that everyone is paying their fair share of taxes.

play07:02

Our tax-to-GDP ratio is far too low.

play07:05

Responsible privatization is the need of the hour.

play07:10

We can no longer afford as a country to continue bleeding

play07:15

in the manner that we have

play07:17

on account of the state-owned enterprises.

play07:21

In all this time, Pakistan has been living beyond its means.

play07:26

All of this is creeping in.

play07:28

It is impacting people.

play07:31

That includes people like Jahanzaib, a stock analyst.

play07:35

He has decided to leave Pakistan for good.

play07:38

Everyone I know, either they have moved out of the country

play07:41

or they are desperately looking to move out.

play07:44

I was driven by the economic uncertainty,

play07:47

the rapid PKR depreciation,

play07:49

rampant inflation

play07:51

and uncertain political environment of the country.

play07:53

Even though I had a very comfortable job,

play07:57

I decided this was not what I want to go through everyday.

play08:05

Life in Pakistan will continue to be dominated by one institution:

play08:10

The Pakistan army.

play08:12

It has been a constant throughout decades

play08:15

and continues to exert influence from behind the scenes.

play08:19

Some analysts say military interference stops overall progress

play08:23

but then others argue it’s the only institution

play08:26

that really can get things done in Pakistan.

play08:31

Hope seems to be running out for most Pakistanis.

play08:34

But not for all.

play08:37

We have to work together to convince our best and brightest

play08:41

that they have a future here, that we are intent on

play08:46

and are doing everything we can to make things easier for them.

play08:52

I’m hopeful.

play08:55

The majority of people I know aren’t hopeful.

play08:59

I’m hopeful because hope sustains the world.

play09:03

If I get disheartened, how will life be? We need to push on.

play09:10

Pakistan will make it.

play09:13

The question is, when?

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