Country in severe liquidity crunch

ISLAMABAD: Pakistan is reeling under a severe dollar liquidity crunch while the recent flash floods have aggravated the macroeconomic fundamentals despite resumption of the IMF programme after a pause of seven months.

Pakistan has not yet made any fresh request to the IMF for the provision of a Rapid Financing Instrument (RFI) or Natural Calamity Response-related funding facility on the expectations of a lukewarm response from the Washington-based international lender. The IMF programme under $6.5 billion was restored in late August after it was stalled in February 2022 under PTI-led regime when it provided unfunded fuel and electricity subsidies.

Now in the wake of severe floods, the initially estimated losses have accumulated in the range of $18 billion, Pakistan’s agriculture sector faces the worst blow as the agriculture growth might remain zero or slide into negative against the envisaged target of 3.9 per cent for the current financial year 2022-23. 

The worst performance of the agriculture sector will put pressure on increased demand for commodities imports and if Pakistan fails to generate desired levels of dollar inflows it might create food shortages in the current fiscal year. “Without improving dollar injections, Pakistan’s macroeconomic vulnerabilities are not going anywhere. 

The situation has aggravated as demand for imports has gone up manifold but the country does not have enough dollars. So in totality the exchange rate has gone under immense pressure in recent days whereby the rupee nosedived 9 per cent against the US dollar,” top official sources said while talking to The News here on Friday.

It is estimated that Pakistan will have to import additional cotton worth $2 billion during the current fiscal year because it witnessed severe damages in the wake of flash floods affecting those areas of Sindh where the cotton production was destroyed completely. Now the government will have to dewater the areas where sowing of wheat is done, otherwise there is a potential threat of less production in the range of 3 to 5 million tonnes. The minor crops of onion and tomato were also damaged in KP and Sindh. The demand for the import of pulses might also go up for the current fiscal year. There is another problem that may emerge on the trade front as the country’s exports also rely upon imports on accounts of raw material and inter-mediatory goods as value addition was done for exporting finished products.