Pakistanis Grapple with Inflation as Floods and Politics Fuel Cost Crisis

The prolonged economic crisis has affected millions of Pakistanis, as the nation receives its 23rd bailout from the International Monetary Fund (IMF) since 1958.

Because of the "fragile" state of the economy, Shamshad Akhtar, the temporary finance minister, even broached the possibility of applying for a second IMF loan last month.

Furthermore, there will be a general election in February, rising inflation, and energy costs that will rise much higher in January.

Pakistan's largest metropolis and transportation center, Karachi, is home to many industrialists. Some have even threatened to entirely stop production on December 4th if the government doesn't reverse the historic rises in gas prices.

Rising Inflation Urges Pakistanis To Seek Alternative Income Sources

Due to the dramatic rise in the cost of electricity and other necessities, many Pakistanis are already compelled to look for alternative sources of income. This is partially due to the government's decision to phase down energy subsidies as a result of the IMF's funding requirements.

After reaching a record high of 38% in June, the inflation rate dropped to 29% in November. Essential foods like rice, pork, and wheat flour have often more than doubled in price in recent years, creating what economist and former finance minister Miftah Ismail called a "disastrous" scenario for the working class and impoverished.

Pakistan has its own issues despite the fact that the conflict in Ukraine, a slow post-pandemic recovery, and shifting energy costs have affected living standards worldwide and led to the closure of 1,600 garment factories.

In April 2022, a parliamentary vote that removed then-prime minister Imran Khan from office precipitated a political crisis. For months, there were protests that shut down businesses. Until the election of the next year, an interim caretaker administration will be in place.

During the monsoon season of last year, devastating floods also claimed the lives of over 1,700 people and flooded large areas of agricultural land. The World Bank calculated that the whole economic loss and expenses came to almost $30 billion (£24 billion).

A slew of assaults and suicide bombings by Islamist extremists seeking to impose a strict interpretation of Sharia law have also put Pakistan in danger.

Pakistan's Appeal to Investors Amid Economic Challenges

Pakistan could appeal to investors due to its youthful population and diverse, broad terrain, particularly for labor-intensive businesses like apparel or vehicle manufacture. Millions of Afghan refugees have crossed the border as a result of decades of violence in neighboring Afghanistan, in addition to the present unrest.

Pakistan's central bank's foreign exchange reserves dropped below $3 billion early this year, not even enough to cover a month's worth of imports due to mounting debt and mounting import expenses.

In July, after months of discussions, Islamabad was able to get $3 billion in emergency finance from the IMF. Its foreign exchange reserves have also been strengthened by allies like China, Saudi Arabia, and the United Arab Emirates.

In an effort to lessen losses for the state-run gas industry, the interim government in October drastically raised natural gas rates for the majority of families and businesses ahead of a review of the IMF funding program. For instance, a fixed rate that was once only 10 rupees per month for almost half of home users has now increased to 400 rupees.