Jakarta, CNBC Indonesia – New chapters of Pakistan’s economic crisis are constantly brewing. This time, Ali Jinnah’s country again experienced an increase in foreign debt and investors began to withdraw their business activities in the country.
In the latest report, quoted on Thursday (9/3/2023), the foreign debt of the country with a majority Muslim population increased sharply by 38% to 20.69 trillion rupees (around Rp. 1,137.95 trillion) at the end of January 2023. In fact, January 2022, Pakistan’s foreign debt will only be at 14.98 trillion rupees.
The report said the increase in debt could be attributed to the massive devaluation of the local currency against the US dollar. It was recorded that the Pakistani rupee fell by 51% year-on-year against the dollar in January 2023.
With this, the overall debt of the Pakistani government jumped to 54.94 trillion Pakistani rupees by the end of January 2023. Domestic debt increased to 34.26 trillion Pakistani rupees at the end of January 2023. Meanwhile the country’s long-term loans increased to 27.51 trillion Pakistani rupees .
The weakening of the rupee exchange rate itself occurred after the International Monetary Fund (IMF) requested that Islamabad liberalize the exchange rate. This is one of the conditions for Pakistan to obtain financial assistance from the institution.
However, what happened was the fall of the rupee against the US dollar. This is starting to shake investors’ confidence in the country.
Recently, the Japanese automotive manufacturer, Honda, announced to close its factory in Pakistan. Honda blamed the current economic situation for its decision and said the factory would remain closed from March 9 to 31.
“Considering Pakistan’s current economic situation where the government is taking stringent measures including limiting the opening of LC (letter of credit) for imports of assembled car kits, raw materials and stopping overseas payments, the company’s supply chain has also been strained,” the official statement said. the company to the Pakistan Stock Exchange cited Economic TimesWednesday.
Honda’s move follows compatriots Suzuki and Toyota, which have decided to close their factories in Pakistan for the same reason.
“Pakistan’s auto industry, which is heavily dependent on imports, is caught in the midst of an exchange rate crunch, as SBP, after the unremitting depreciation of the rupee, imposed restrictions on opening LCs,” reported Geo News.
Pakistan has been experiencing a severe economic crisis since 2022. In addition to soaring debt and a drop in the exchange rate, the country is also hit by high inflation and a shortage of foreign exchange.
The IMF also last year disbursed a bailout of US$ 6 billion (Rp 90 trillion) in 2019, which was added to last year’s US$ 1 billion (Rp 15 trillion) in Pakistan. But the lender then halted disbursements in November due to Pakistan’s failure to make more progress on fiscal consolidation and economic reforms.
Historically, Pakistan has also been a loyal customer of the IMF, with Islamabad having been a patient of the financial institution 23 times since independence in 1947.
Although he has been a frequent customer of the IMF, an economic crisis always occurs every few years in Pakistan, which is caused by the economy not producing enough and spending too much, so it is dependent on foreign debt. Each successive crisis got worse as debt bills grew larger and payments fell due.
In addition, internal political instability and catastrophic floods exacerbated the current crisis. There were also significant external elements to the crisis, with the global rise in food and fuel prices after Russia’s war in Ukraine.
(sef/sef)
