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Pakistan, ravaged by rising inflation, seeks IMF lifeline


Muhammad Nazir canceled his daughter’s marriage. He parks his motorcycle at home and walks to his shop. Many of his shelves are empty because he can’t afford to stock the same supply of candies, sodas and cookies that he once did.

A growing number of its customers cannot buy their snacks anyway. The global wave of inflation has dealt a severe blow to Pakistan, a country of 220 million already struggling with erratic growth and high public debt.

As the cost of food and fuel consumes a larger share of meager incomes, people are pressuring Prime Minister Imran Khan’s government to act.

“I’m not making a profit these days,” said Mr. Nazir, 66, from his shop in Sohawa, a town about 80 kilometers southeast of the Pakistani capital Islamabad. “Still, I come here every day, open the shop and wait for customers.”

Rising prices have jeopardized President Biden’s agenda in the United States, hitting shoppers from Germany to Mexico and South Africa. But they have a particularly dire effect in Pakistan, a developing country already subject to political instability and heavily dependent on imports such as fuel. The effect has been exacerbated by a sharp weakening of the Pakistani currency, the rupee, which has reduced its purchasing power internationally.

While inflation is expected to decline as supply chain bottlenecks disappear, Pakistan feels it cannot wait. On Monday, the government announced it had reached an agreement with the International Monetary Fund for the first $1 billion of what is expected to be a $6 billion bailout package.

“The economy is the biggest threat facing the government right now,” said Khurram Husain, a business journalist in Karachi. “This basically erodes the very foundation of their public support.”

Protests organized by opposition parties have erupted across Pakistan in recent weeks, prompting Mr Khan’s political allies to scrutinize their allegiances. Pakistan’s Muslim League-Q, or PML-Q, party, which is in coalition with Mr Khan, said earlier this month that it was becoming difficult to join the government.

“Our MPs feel a lot of pressure in their constituencies,” said Moonis Elahi, Mr Khan’s water resources minister and PML-Q member. “Some even suggested leaving the alliance if the situation does not improve.”

Government officials have downplayed the recent surge in inflation, saying it’s a global phenomenon. Mr Khan also blames the foreign indebtedness he inherited from the previous government.

“The government spent its first year stabilizing the economy, but as it nearly stabilized, the country faced its biggest crisis in 100 years: the coronavirus epidemic,” he said, adding “no doubt inflation is an issue. ”

Officials also cite price comparisons of fuel costs with neighboring countries, such as India, and claim that Pakistan is still better off. Pakistanis have seen standard gas prices rise 34 percent in the past six months, to say about 146 rupees one liter.

Pakistan is rushing to curb inflation and get the money it needs to keep buying abroad. Last week, Pakistan’s central bank hiked interest rates sharply, a move that could curb price increases but slow economic growth.

Khan’s government reached out to Saudi Arabia for a lifeline. Saudi Crown Prince Mohammed bin Salman pledged $4.2 billion in cash aid. Members of his government are also looking for loans from China they say they are needed to complete critical energy sector projects that are part of the $62 billion China-Pakistan Economic Corridor.

Pakistan’s economy has been in and out of crisis since Mr Khan, a former cricketer, came to power in 2018. But other periods of inflation have been felt mainly by the wealthy, economists say. This bad turn affects everyone.

According to government data, inflation rose 9.2 percent in October compared to the previous year. Food price inflation is crushing Pakistan’s poorest residents, who normally spend more than half of their income on food. The cost of staple foods rose 17 percent year-on-year earlier this month, government data show. Pakistan’s largest food import is palm oil, which: has jumped in price.

In the United States, food prices have risen by 4.6 percent.

In terms of energy, Pakistan imports about 80 percent of its oil and diesel and about 35 percent of its gasoline, according to Muzzammil Aslam, a spokesman for the Treasury Department. Electricity in Pakistan already costs twice as much as in neighboring countries such as India, China and Bangladesh.

“The economy is not doing well,” Mian Nasser Hyatt Maggo, the chairman of the Federation of Pakistan Chambers of Commerce & Industry, a Karachi-based industry group, said simply.

Unemployment has also risen sharply, especially among urban graduates. The number of people ending up in poverty is increasing.

The troubles have increased Pakistan’s urgency to set up a $6 billion loan program with the IMF. Talks have been going on for weeks, stumbling over Pakistan’s insistence that the central bank governor, which sets interest rates, reports to Mr Khan’s government, and the IMF insists the office remain autonomous. Pakistan was part of an IMF program in 2019, but the program was suspended a year later when the IMF said Pakistan is not implementing its structural reform recommendations.

Even if the deal goes through, Pakistan’s economic pain would not end immediately.

Khan’s government helped Pakistan weather pandemic lockdowns and other business and trade disruptions with generous spending packages for the industry. That boosted demand for imported factory parts, raw materials and other goods, increasing Pakistan’s trade deficit. That in turn puts pressure on the rupee to weaken, making imports more expensive.

“We have a huge budget deficit and a huge trade deficit. I have not seen the trade deficit of the past three months in Pakistan for 74 years,” said Farrukh Saleem, an economic analyst in Islamabad.

Mr Saleem predicted that Pakistan’s imports would soon reach $72 billion, more than double the norm.

An IMF stamp of approval would make it easier for Pakistan to approach the World Bank and the Asian Development Bank, as well as the capital markets where it could sell bonds.

Khan’s government has distributed cash to 20 million of Pakistan’s poorest families and subsidized the cost of grains, pulses and cooking oil. If Pakistan reaches an agreement with the IMF, it will have to pull out the wallet.

That will hurt Mr Khan politically in places like Sohawa, where many people supported him in the last general election.

“Imran Khan is a good person and still loved by many, but his team is not performing,” said Saleem Shahzad, a plumber who recently moved his 6-year-old son to a lower-cost school.

“It’s incompetent,” he said.

Emily Schmall reported from New Delhi and Salman Masood reported from Sohawa, Pakistan.

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