Key factors behind Pakistan’s worsening economic crisis

Pakistan’s Finance Ministry this week predicted that inflation will remain high while warning that the cash-strapped country is facing “serious headwinds” in the current fiscal year, the Dawn reported.

“Due to the destruction brought on by floods, economic growth in FY23 is projected to stay below the budgeted level. The main issues facing policymakers are poor growth, rising inflation, and low levels of government foreign exchange reserves “According to the warning published by the Finance Ministry of Pakistan in its Monthly Economic Update and Outlook.

According to the economic outlook, Pakistan’s overall fiscal deficit stood at 1.5 per cent of GDP during July-October 2022-23 as compared to 0.9 per cent of GDP last year.

The Dawn report said the fiscal

deterioration was because of higher expenditure growth on the back of higher markup payments while the government is facing the challenge of providing relief to people in flood-hit areas.

“Standing water due to recent floods may create problems in achieving the assigned wheat sowing target, however, the federal and provincial governments are working hard and committed to enhance wheat productivity,” the economic update said.

Secondly, the impact of floods-induced destruction of agricultural output may start finding its way into the industrial sectors.

As the country is on the brink of economic collapse, Global Start View in its report

said “Pakistan has also been facing tumultuous political shifts in power in a desperate attempt to save the rapidly sinking ship”. 

Experts say the Pakistani economy has been “teetering on the edge of ruin for years now”.

In its piece published on December 29, the Global Start View referred to a recent report by the UN’s climate summit that exposed how the threat of worsening climate change will affect Pakistan.

According to the UN assessment, environmental degradation cannot be stopped until the nation takes proactive

efforts to promote sustainable development. Prior until now, Pakistan frequently required assistance with its balance of payments in relation to imported fossil fuels. 

“Imagine that the government made investments in renewable energy sources to enable it to produce enough energy for its domestic and industrial sectors. In that event, the country’s excessive reliance on foreign aid as well as its external debt may be greatly reduced over time ,” according to the Global Start View.

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