Pakistan’s rupee is rapidly devaluing against the US dollar, while the central bank’s foreign exchange reserves have fallen to $8.575 billion, which are not enough to meet its exports needs for even two months. On the other hand, the country’s current account deficit surged to $17.40 billion in the previous fiscal year despite measures to contain imports. To compound the situation for the common people, overall inflation in the country has reached 37.67pc, which is feared to increase further after recent hikes in electricity and gas prices and the rupee’s sharp devaluation.

The country’s worries have worsened after an International Monetary Fund (IMF) loan programme has been delayed despite reaching a staff-level agreement. As a result, pressure on the local currency has increased. Political uncertainty is also adding to the economic crisis. It has forced all international financial and rating institutions to downgrade Pakistan’s outlook.

In the last week, the rupee fell to an all-time low in the open market, trading at 250 against the dollar. Experts have attributed it to the panic buying of the dollar by the common people. A shortage of dollars in the open market is also being blamed for it. The dollar is being traded at Rs255 in Afghanistan, because of which the greenback is being smuggled to it.

Pakistan’s current account deficit surged to $17.40 billion in the previous fiscal year which ended on June 30, mainly on the back of swelling imports and higher global commodity prices. The current account deficit spiked six times (or up $14.59 billion) in the fiscal year 2021-22, compared to $2.82 billion in the previous fiscal year. The deficit had widened to a record high at $19.20 billion in FY18. After a gap of four years, the deficit once again surged in FY22 and reached $17.40 billion. In June alone, it soared to a five-month high at $2.30 billion. It was 59pc higher compared to the previous month and 40pc more than the same month of the previous year.

Inflation, measured through the Sensitive Price Index (SPI), posted a hefty increase of 3.68pc for the week ended on July 28, according to the Pakistan Bureau of Statistics (PBS). The overall inflation rate has reached 37.67pc in the country.

Pakistan’s external position has weakened against a backdrop of higher commodity prices, tighter global financial conditions, and a weakening rupee, noted the S&P Global Ratings in its latest report. It also downgraded the outlook on Pakistan’s long-term ratings to negative from stable. Now, all the three international rating agencies, Moody’s, Fitch and S&P, are skeptical about Pakistan’s outlook.

The S&P Global Ratings affirmed its ‘B-’ long-term and ‘B’ short-term sovereign credit ratings on Pakistan, as well as ‘B-’ long-term issue rating on the country’s senior unsecured notes and Sukuk Trust Certificates. The agency said it could lower its ratings if Pakistan’s external indicators continued to deteriorate, but the outlook could be revised to stable if its external position stabilises and improves. Evidence of improvement could include a sustained rise in usable foreign exchange reserves. Pakistan’s domestic demand continues to recover, it is now facing a new challenge in the form of rising prices, particularly for staple goods, it observed. “Prevailing price dynamics, including costlier edible oils, fuel, electricity, and grains, are likely to hurt the pace of private consumption growth in the current fiscal year ending June 2023,” it projected.

Recounting risks, the rating agency maintained, the Pakistan government has considerable external indebtedness and liquidity needs, and an elevated general government fiscal deficit and debt stock. “Prevailing price dynamics, including costlier edible oils, fuel, electricity, and grains, are likely to hurt the pace of private consumption growth in the current fiscal year ending June 2023,” it forecast.

The S&P said while Pakistan’s domestic demand continues to recover, it is now facing a new challenge in the form of rising prices, particularly for staple goods. “Although the impact of these more difficult macroeconomic conditions has been partially mitigated by various reform initiatives undertaken by the government over the past few years, the risk of continued deterioration in key metrics, including external liquidity, is rising,” the agency said.

“However, the current inflationary environment complicates the implementation of such policies. Achieving a primary fiscal balance surplus, and boosting its stock of foreign exchange reserves, will also be more difficult for the government to achieve against the current external backdrop,” it added. The agency also feared that political uncertainty would remain elevated over the coming quarters. It said that although Pakistan’s security situation had gradually improved over recent years, ongoing vulnerabilities weakened the government’s effectiveness and weighed on the business climate.

As the country’s economic indicators worsened, Army Chief General Qamar Javed Bajwa reached out to Washington to push the IMF to immediately release nearly $1.2 billion Pakistan needs to stave off a serious crisis. The civilian leadership also contacted the US diplomat in Islamabad, seeking his help to unlock $1.4 billion funds from the World Bank and the Asian Infrastructure Investment Bank (AIIB).

The government is also exploring the possibility of selling stakes in its profitable entities listed at the stock market to some Gulf countries in return for money. The federal cabinet has already approved a draft government-to-government Transaction Bill 2022 Bill to pave the way for it. The government hopes to secure $4 billion worth of commitments from friendly countries.

According to the government, the pressure on the rupee will start easing in weeks after imports have significantly reduced due to a number of measures taken by the Finance Ministry and the State Bank of Pakistan. It believes the inflow of dollars in the country will be greater than the outflow in the coming weeks. However, rising prices will still be a serious challenge to the government.