2022 was a stressful year for Pakistan. The first half of the year was marked by troubles largely emanating from two developments within the country. To begin with was the constitutional crisis leading to Imran Khan’s ouster from office as Prime Minister in April. Political instability impacted Pakistan’s economy negatively, which was already sluggish, as the International Monetary Fund (IMF) halted the ‘bailout package’ or Extended Fund Facility (EFF) in 2020, stating reasons of non-conformity of key norms. In February 2022, Khan’s announcement of the ‘relief package’, including fuel subsidies, was seen as a reversal of agreed reforms on Pakistan’s part.[i] Hence, negotiations on resuming the EFF kept failing. The pausing of the USD 6 billion Fund added to the brewing economic downturn in Pakistan last year.
The second was the devastation caused by the unprecedented floods, the “monsoon on steroids”,[ii] in June 2022. This sparked a grave socio-economic crisis, with damages pegged at more than USD 30 billion and death toll of more than 1730 people.[iii] Though assistance was received from outside, Pakistan’s economic situation further deteriorated, with external debt stocks reaching USD 130 billion by the end of 2021, as compared to USD 115 billion by the end of 2020.[iv] Similarly, on most other economic indicators, Pakistan fared poorly, pushing it into deep crisis.
Yet, despite continuing problems on these fronts, Pakistan managed to stir its economy from default and bankruptcy. On this note, it is important to analyse how Pakistan managed to stay afloat and if it will be able to dodge its increasing economic troubles any further in the face of continuing problems on the political front.
Resumption of IMF funds
The second half of 2022 brought some respite to Pakistan’s economic doldrums. The most important factor for this was the resumption of the EFF in August. Pakistan has a history of reaching out to IMF, either for EFF, Extended Credit Facility (ECF) or Stand-By Arrangements (SBA). Since its membership of IMF on 11 July 1950, it has received assistance from the institution on 23 occasions.[v] On 3 July 2019, IMF provided EFF to Pakistan for the sixth time. This was to be till 2 October 2022. However, mainly in light of Imran Khan’s policies, IMF had refused to resume this fund despite repeated requests, approving the 7th and 8th tranche worth USD 1.17 billion only after the Shehbaz Sharif Government signaled stricter measures at home. This was a much-needed relief for Pakistan. Especially as the term of the EFF was extended up to 30 June 2023, along with an increase in the amount, making it USD 6.5 billion in total[vi].
The IMF funds gave confidence to the Sharif Government which was reeling under pressure of default. For instance, Pakistan had managed to pay USD 40 million towards the Sharia compliant Sukuk bond in July 2022[vii] and the next big amount of USD 1 billion was paid a little before time in December, largely because of cushioning received from the IMF funds.[viii] It is to be noted that unlike Sri Lanka, which defaulted on its external debt of USD 51 billion in 2022,[ix] falling into a debt-trap, Pakistan has not defaulted on payments. Further, the resumption of the IMF funds helped manage more loans from other foreign partners. This in turn, to some extent, helped stabilize a falling economy.
Assurances from foreign partners
Amongst Pakistan’s foreign partners, China tops the list, both in terms of largest funds provided and largest investments made. Pakistan owes 30% of its total foreign debt in 2022 to China.[x] In June, China gave Pakistan a USD 2.5 billion loan to help boost its forex reserves, in addition to USD 4.5 billion loan that was announced last year.[xi] China has also invested money for projects under the China-Pakistan Economic Corridor (CPEC), that has reportedly reached USD 25 billion already.[xii]
Meanwhile, other external partners came in to help Pakistan’s troubled economy. Many such cases can be enumerated. Reportedly, Saudi Arabia, Qatar and UAE have committed to provide assistance to Pakistan, amounting to about USD 4 billion.[xiii] Among help received from the West, France signed an agreement with Pakistan to suspend the USD 107 million loan repayment under the G-20 Debt Service Suspension Initiative (DSSI).[xiv] American assistance was received in form of the United States Assistance for International Development (USAID) worth USD 30 million by August 2022.[xv] A donor’s conference that was held in Geneva on 9 January 2023 was seen as an opportunity by Pakistan, where it hoped to seek support to push creditors to provide USD 13 billion loans, especially for various infrastructure projects.[xvi] Pakistan managed to gain USD 10 billion as pledges during the conference.[xvii] While PM Sharif expressed his gratefulness to donors, he stated that there are still large funding gaps for minimum recovery.[xviii]
Besides the EFF resumption, by October 2022, Pakistan managed to get out of the ‘greylist’ of the Financial Action Task Force (FATF). This resulted in some easing of sanctions on Pakistan making it easier for external entities and partners to work with Islamabad. For instance, the Asian Development Bank (ADB) released USD 1.5 billion loan under the Building Resilience with Active Countercyclical Expenditure (BRACE) programme to Pakistan soon after. Similarly, in November 2022, Asian Infrastructure Investment Bank (AIIB) agreed to provide the State Bank of Pakistan (SBP) with USD 500 million, under the BRACE programme.[xix]
What can be expected?
All said and done, Pakistan continues to be in dire straits. There are three main reasons that can be given for predicting a further decline in the economic situation in Pakistan this year.
One, donor fatigue. Whatever help Pakistan could get from ‘friendly countries’ already seem to have reached optimum level. As much as PM Shehbaz Sharif is cautious about Islamabad relying on more assistance for its economic troubles, and is noted to have been embarrassed for becoming a ‘begging bowl’, Pakistan has little option but to depend on outside help. Meanwhile, with Fitch downgrading Pakistan’s long-term issuer default rating (IDR) from B- to CCC+ in October 2022, countries are less confident about Pakistan’s repayment capacity[xx]. This is certainly going to slow down help coming into Pakistan, even from its well-wishers. China, for instance, where PM Sharif paid his first bi-lateral visit in November 2022, long after coming to power, has only reaffirmed its commitment of standing by its ‘All-Weather Strategic Cooperative Partnership’ and of providing economic assistance to Islamabad, albeit without any announced new package.[xxi] China claims to have done ‘utmost’ for Pakistan already, [xxii] though one should not expect China to give up on Pakistan’s economy. Further, the review of the 9th tranche of IMF funds is moving at a slow pace, waiting for further norm compliance in the South Asian country.
Two, domestic constraints and political uncertainty. In Pakistan, 2023 began with Imran Khan’s party – Pakistan Tehreek-e-Insaf (PTI) – that continues to hope for snap election this year, announcing and staging protests across the country, against rising inflation and inefficiency of the Sharif Government[xxiii]. It was also stated that a new wave of inflation is expected given that to avail the next tranche of IMF funds, new taxes will have to be imposed adding to increased prices. Images and videos of people filling up balloons with LPG (due to shortage of gas), state instructions aimed at rationing of electricity, chaos caused by rising flour prices (due to shortage of wheat) and a general unease in society has become clearly visible over the past few weeks. There is also a rise in terror attacks, particularly as the Tehreek-e-Taliban Pakistan (TTP) has emerged as a threat[xxiv], while clashes at the Afghanistan-Pakistan border continue. All these indicate that the economic troubles of Pakistan are only going to get worse with added internal pressures. Experts within Pakistan have been suggesting substantial debt-restructuring policies and not piecemeal ones.[xxv] These structural changes and policy rectifications is least expected to be smooth.
Three, worsening economic parameters. Pakistan’s current account deficit (CAD) swelled from USD 2.8 billion in fiscal year 2021 to USD 17.41 billion in FY22.[xxvi] Pakistan’s forex reserves with the SBP kept dipping in December 2022, from USD 6.72 billion in the first week[xxvii] to USD 6.1 billion by mid-month[xxviii] to USD 5.5 billion as the year ended.[xxix] Remittance, which adds to improved forex, also came down.[xxx] By the end of 2022, inflation rose, as indicated by high consumer price index (CPI), recorded at 24.5%, compared to 12.28% a year earlier[xxxi]. Currency value has gone down as compared to the dollar, though further drops are expected. These numbers do not reflect well on Pakistan’s macroeconomic situation this year.
Comparison of key economic indicators between 2021-22
Forex reserves with SBP
21 December 2021 and 30 December 2022
USD 17.6 bl and USD 5.5 bl
FY22 to FY23
USD 13,286.9 ml to USD 12,008.7 ml
Current Account Deficit
FY21 to FY22
USD 2.8 bl to USD 17.41 bl
Consumer Price Index
December 2021 to December 2022
12.28% to 24.5%
Source: Compiled by author
Pakistan’s economic troubles have been lingering on for more than three years now. The halt of IMF’s ‘bailout package’ to Pakistan since 2020, the losses incurred and socio-economic crisis that ensued after the unprecedented floods in June 2022 and political mismanagement at home pushed Pakistan to the brink of economic default and collapse in 2022. It managed to survive as the second half of the year brought hope in form of resumed IMF funds and loans from foreign partners. Economic indicators are not looking good for Pakistan in 2023, with analysts pointing towards donor fatigue. The year took off on the note of protests against rising inflation led by Imran Khan’s PTI. It will be no surprise if the year ends with more complications for Pakistan.
*Dr Shrabana Barua is a Research Fellow at the Indian Council of World Affairs, New Delhi
Views expressed are personal.
[i] Khaleeq Kiani, “IMF wants PTI’s ‘relief package’ reversed”, Dawn, 21 April 2022, URL: https://www.dawn.com/news/1686058.
[ii] UN Secretary General, António Guterres remarked on the floods in Pakistan, in a speech in August 2022, making an appeal to the international community for help, amounting to USD 160 million. See, Simon Fraser, BBC News, 30 August 2022, URL: https://www.bbc.com/news/world-asia-62722117.
[iii] The World Bank, “Pakistan: Flood Damages and Economic Losses Over USD 30 billion and Reconstruction Needs Over USD 16 billion - New Assessment”, 28 October 2022, URL: https://www.worldbank.org/en/news/press-release/2022/10/28/pakistan-flood-damages-and-economic-losses-over-usd-30-billion-and-reconstruction-needs-over-usd-16-billion-new-assessme.
[iv] “Pakistan's external debt stocks in 2021 stood at $130 billion: World Bank”, Business Standard, 8 December 2022, URL: https://www.business-standard.com/article/international/pakistan-s-external-debt-stocks-in-2021-stood-at-130-billion-world-bank-122120800119_1.html.
[v] “Pakistan: History of Lending Commitments, as of February 29, 2020”, International Monetary Fund, URL:https://www.imf.org/external/np/fin/tad/extarr2.aspx?memberKey1=760&date1key=2020-02-29.
[vi] “IMF Executive Board Completes the Combined Seventh, and Eighth Reviews of the Extended Fund Facility for Pakistan”, International Monetary Fund, 29 August 2022, URL: https://www.imf.org/en/News/Articles/2022/08/29/pr22293-imf-executive-board-completes-reviews-of-extended-fund-facility-pakistan.
[vii] Sukuk bonds are Sharia compliant certificates through which investors lend money to the issuer, indicating an obligation for repayment at maturity date. Erum Zaidi and Mehtab Haider, “Sukuk bonds: Pakistan repays $40 m”, The News, 2 August 2022, URL: https://www.thenews.com.pk/print/978951-sukuk-bond-pakistan-repays-40m.
[viii] “Pakistan averts default; pays USD 1 billion Sukuk bond before schedule” The Economic Times, 3 December 2022, URL: https://economictimes.indiatimes.com/markets/bonds/pakistan-averts-default-pays-usd-1-billion-sukuk-bond-before-schedule/articleshow/95958498.cms.
[ix] “Sri Lanka announces default on all of its $51 billion external debt”, The Economic Times, 12 April 2022, URL: https://economictimes.indiatimes.com/news/international/world-news/sri-lanka-central-bank-governor-says-to-temporarily-suspend-foreign-debt-payments/articleshow/90794291.cms.
[x] Farseeh Mangi, “China’s Funding to Pakistan Stands at 30% of Foreign Debt”, Bloomberg, 2 September 2022, URL: https://www.bnnbloomberg.ca/china-s-funding-to-pakistan-stands-at-30-of-foreign-debt-1.1813897.
[xi] Shrabana Barua, “Keeping a close watch on Pakistan’s economy”, Hindustan Times, 14 November 2022, URL: https://www.hindustantimes.com/opinion/keeping-a-close-watch-on-pakistan-s-economy-101668432926334.html.
[xii] Andrew Small’s interview with Nirupama Subramanian. See, “CPEC: A status check”, Expert Explains, The Indian Express, 3 November 2022.
[xiii] “Pakistan set to receive $2 billion from Qatar to ease funding crunch”, Bloomberg, 23 August 2022, URL: https://www.business-standard.com/article/international/pakistan-set-to-receive-2-billion-from-qatar-to-ease-funding-crunch-122082301381_1.html. See also, “Qatar, Gulf States to assist Pakistan with $4bn”, Middle East Monitor, 23 August 2022, URL: https://www.middleeastmonitor.com/20220823-qatar-gulf-states-to-assist-pakistan-with-4bn/.
[xiv] Economic Affairs Division, Ministry of Economic Affairs, Tweet @eadgop, 27 June 2022, URL: https://twitter.com/eadgop/status/1541372537267011585?lang=en.
[xv] “United States Providing Additional $30 Million In Critical Humanitarian Assistance In Response To Flooding In Pakistan”, USAID, 30 August 2022, URL: https://www.usaid.gov/news-information/press-releases/aug-30-2022-united-states-providing-additional-30-million-critical-humanitarian-assistance-pakistan-flooding.
[xvi] Mehtab Haider, “Donors’ conference in Geneva on Jan 9: Pakistan to seek US govt support to get $13bn loans for dozen projects”, The News, 28 December 2022, URL: https://www.thenews.com.pk/print/1024571-donors-conference-in-geneva-on-jan-9-pakistan-to-seek-us-govt-support-to-get-13bn-loans-for-dozen-projects.
[xvii] Abid Hussain, “Pakistan PM says ‘deeply moved by compassion’ of donors at Geneva”, Aljazeera, 10 January 2023, URL: https://www.aljazeera.com/news/2023/1/10/pakistan-pm-says-deeply-moved-by-compassion-of-donors-at-geneva.
[xviii] “Statement by the Pakistan Prime Minister, at the International
Conference on a Climate Resilient Pakistan”, Geneva, 9 January, 2023, URL: https://pakun.org/statements/Economic_and_Social_Council/2023/01092023-01.pdf.
[xix] “AIIB Signs USD500-Million Agreement at COP27 to Support Pakistan’s Economic Resilience”, Asian Infrastructure Investment Bank, 22 November 2022, URL: https://www.aiib.org/en/news-events/news/2022/AIIB-Signs-USD500-Million-Agreement-at-COP27-to-Support-Pakistans-Economic-Resilience.html.
[xx] “Fitch Downgrades Pakistan to 'CCC+'”, FitchRating, 21 October, 2022, URL:https://www.fitchratings.com/research/sovereigns/fitch-downgrades-pakistan-to-ccc-21-10-2022.
[xxi] “Joint Statement between the People’s Republic of China and the Islamic Republic of Pakistan”, Ministry of Foreign Affairs, Government of Pakistan, 2 November 2022, URL: https://mofa.gov.pk/joint-statement-between-the-peoples-republic-of-china-and-the-islamic-republic-of-pakistan-2-november-2022/.
[xxii] “On Financial Support For Pakistan, China Says It Has Done Its "Utmost"”, NDTV, 7 November 2022, URL: https://www.ndtv.com/world-news/we-will-not-let-you-down-xi-jingping-on-chinese-aid-for-pak-economy-3498505.
[xxiii] “PTI Unfolds details of ‘anti-inflation’ agitation”, Dawn, 31 December 2022, URL: https://www.dawn.com/news/1729078.
[xxiv] “Pakistan saw rise in ‘terror attacks’ in 2022 as TTP turned biggest threat”, The Print, 1 January 2023, URL: https://theprint.in/world/pakistan-saw-rise-in-terror-attacks-in-2022-as-ttp-turned-biggest-threat/1292494/.
[xxv] Kazim Alam, “Debt restructuring is inevitable”, Dawn, 5 January 2023, URL: https://www.dawn.com/news/1724571/debt-restructuring-is-inevitable.
[xxvi] “Pakistan's current account deficit rises to 4-year high of $17.4 bn in FY22”, Business Standard, 28 July 2022, URL: https://www.business-standard.com/article/international/pakistan-s-current-account-deficit-rises-to-4-year-high-of-17-4-bn-in-fy22-122072801029_1.html.
[xxvii] Abid Hussain, “Pakistan central bank’s forex reserves fall to near four-year low”, Aljazeera, 9 December 2022, URL: https://www.aljazeera.com/news/2022/12/9/pakistan-central-banks-forex-reserves-fall-to-near-four-year-low.
[xxviii] “SBP forex reserves plunge to 8-year low”, Dawn, 22 December 2022, URL: https://www.dawn.com/news/1727705.
[xxix] Domestic Market and Monetary Management Department, State Bank of Pakistan, URL: https://www.sbp.org.pk/ecodata/forex.pdf. Accessed on 5 January 2022.
[xxx] Core Statistics Department, State Bank of Pakistan, URL: https://www.sbp.org.pk/ecodata/Homeremit.pdf. Accessed on 5 January 2022.
[xxxi] “Inflation in Pakistan rose to 24.5% in Dec 2022 compared to 2021: Data”, Business Standard, 5 January 2023, URL: https://www.business-standard.com/article/international/inflation-in-pakistan-rose-to-24-5-in-dec-2022-compared-to-2021-data-123010300621_1.html.