Pakistan economy has little chance to improve without addressing structural distortions observed the World Bank, identifying the main reasons for structural imbalances.
It said that distortions either introduced by policy decisions or other impediments remain unaddressed while reforms remain eluding impeding increase in productivity. The perception of Pakistan’s risk of default has worsened with the 5-year Credit Default Swap (CDS) surging by 30 percentage points in a week to 93% ahead of the repayment of the USD 1 billion Sukuk international bond, maturing in early December. The CDS was just 4.2% in January 2021. The developments came amid a delay in the 9th review of Pakistan’s economy by the International Monetary Fund (IMF), which partly blocked the foreign currency inflows.
The foreign exchange reserves depleted to a critically low level of USD 8 billion against over USD 20 billion in August 2021, weakening the country’s capacity to make international payments. Foreign Direct Investment (FDI) nosedived by 52% during the first four months of the current fiscal year FY23, reflecting poor economic health. Pakistan could manage to receive only USD 4.2 billion in new loans in the first four months of the current fiscal year compared to estimates of around USD 7 billion. Adding to the forex crisis of Pakistan is a continued fall in remittances. In July-October 2022 remittances fell to USD 9.9 billion, down 8.6% from USD 10.827 billion in July-October last year. It is estimated that if the declining trend continues, total remittances in FY23, ending in June, would remain close to USD 30 billion, lower than the USD 31 billion that flowed in FY 2022.
hat may make it difficult for Islamabad to contain its current account deficit to around USD 10 billion. This is viewed in the light of sluggish merchandise exports which recorded a meagre growth of 1% in the July-October 2022 period to USD 9.549 billion and declining remittances from Saudi Arabia,