Pakistan, home to a population of approx. 2.8 million is on the edge of bankruptcy. Containers of necessary food products, raw materials, and medical equipment are b

Pakistan, home to a population of approx. 2.8 million is on the edge of bankruptcy. 

Containers of necessary food products, raw materials, and medical equipment are being held up at the Karachi port

 because the state is unable to pay for imports. Banks have declined to renew importers' letters of credit.

In the week ended on Feb. 3rd, the foreign exchange reserves held by the central bank fell by $170 million to $2.9 billion. 

Negotiations between the nation and the International Monetary Fund (IMF) are ongoing to disburse desperately needed funds under a stalled bailout agreement.

The Country is experiencing severe political turmoil. The economic instability was heightened by the global economic instability caused by the Ukraine war. 

Devastating floods between June and August 2022 have triggered a tragedy that 

from a weak business climate to malfunctioning domestic energy markets and inadequate tax collection to gloomy foreign direct investment; all factors have contributed to the crisis.

For the ninth review of the aid package, negotiations between the International Monetary Fund (IMF) team, headed by Nathan Porter, and the Pakistani government, represented by Finance Minister Ishaq Dar, commenced on January 31. 

However, no agreement has been declared as of yet. 

The implementation specifics of these policies will be finalized through virtual conversations in the upcoming days, according to the IMF. The money on the table, which is a portion of a $6.5 billion loan scheme, is still insufficient to restore Pakistan's devastated finances. 

How can this tsunami of defaults and rapidly declining foreign exchange reserves be prevented?

Pakistan must make some significant changes in order to avoid living paycheck to paycheck.

 Import bans are an example of a populist move that is foolish and ineffective because it raises the cost of living by increasing inflation. Sri Lanka's experimentation with the import ban strategy to stop the loss of foreign exchange reserves proved to be a catastrophic failure.

must concentrate on curbing wasteful spending

, such as subsidies and non-developmental military budgets. 

In addition, Pakistan requires a methodical and focused approach to 

 and stop the leakage of millions of dollars in untapped revenue. 

Only with the influx of foreign currency and/or the cessation of outflows would the pressure on the Rupee subside. In this regard, the 

government must devise creative solutions to stop the smuggling of money and other commodities over international borders. 

In order to reduce the financial and economic costs of a crisis, 

Pakistan also needs a solid macroeconomic and financial regulatory framework. 

The expansion of chaos and uncertainty in an economy is significantly influenced by information flow. The government must engage in honest public communication through media experts committed to providing accurate economic reporting in order to prevent the spread of disinformation.

The political parties should exercise restraint in this chaotic

 situation and take decisive action to break the impasse that has raised the clouds of unease and uncertainty.

Pakistan on the Verge of Default

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