Reflections on Pakistan’s 2023: Inflation and IMF

Web DeskDecember 28, 2023
Reflections on Pakistan's 2023: Inflation and IMF

Keeping tabs on Pakistan’s woes is proving increasingly challenging. In 2023, a convergence of crises spanning political, economic, and security realms unfolded in unprecedented ways. While the repercussions of the post-2008 democratic order collapse continue to unfold, the economic distress has intensified to the point where even affluent urban residents are feeling its sting.

Here are the pivotal events encapsulating the anguish of 2023:

1. Inflation Persists – A Monstrous Challenge

  • In 2023, inflation became more than a mere catchphrase (“mehengai ka toofan”) in Pakistani media; it became a reality that shattered households’ confidence.
  • The rupee’s depreciation, soaring energy costs, and the downstream effects of consecutive IMF programs amplified inflation’s detrimental impact on the economy.
  • Despite the central bank’s unwavering commitment to its medium-term inflation target, consumer prices surged nearly 30% over the year, as per Pakistan Bureau of Statistics’ consumer price index.

Read more:Pakistan Requires $25 Billion in Loans This Fiscal Year, as Reported by The IMF

2. Dar’s IMF Confrontation Ends in Defeat

  • Ishaq Dar’s return to the finance ministry marked a significant event, given his extensive IMF-related experience, although debated whether this should qualify him for the role.
  • Attempting to maintain the rupee peg led to a struggle between policies, but ultimately, the IMF emerged victorious, though Dar’s economic legacy remains a shadow.

3. Fixation on a Stronger Rupee – Short-Term Respite

  • The pursuit of a robust rupee seems sensible to curb inflation and handle energy imports, yet this approach often yields fleeting relief, proven by past instances.
  • Will policymakers opt for a different strategy in 2024? The looming House of Sharif’s dominance in upcoming elections raises questions about another round of ineffective economic policies.

4. SIFC – The Panacea for All Troubles

  • Pakistan’s elite introduced the Special Investment Facilitation Council (SIFC), propounding change but often yielding contradictory outcomes.
  • Aiming to revolutionize the country’s fate, the SIFC targeted various sectors, even setting a lofty $100 billion IT export goal, although internet disruptions ensued.

While Pakistan expected a financial windfall through the SIFC and aimed to attract substantial investments, the reality fell short, with only $2.1 billion in foreign direct investment in 2022 and 2023 combined. Anticipation persists for 2024, as the SIFC’s efficacy is put to the test.

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