What is the Financial Crisis and the Fall of Pakistan?

What is the financial crisis and the fall of Pakistan? is one of the many questions that are asked by people like you who most assuredly take interest in international politics and historical stamina of different countries of the world. So, in order to answer the question, we have to dig a little deep into the record of some of the political events and diplomatic relationships shared by the South-Asian country, Pakistan across the world.

Pakistan is the 33rd-largest country in the world by area and the second-largest in South Asia, spanning 881,913 square kilometers (340,509 square miles). It has a 1,046-kilometre (650-mile) coastline along the Arabian Sea and Gulf of Oman in the south, and is bordered by India to the east, Afghanistan to the west, Iran to the southwest, and China to the northeast.

It is separated narrowly from Tajikistan by Afghanistan’s Wakhan Corridor in the north, and also shares a maritime border with Oman. Islamabad is the nation’s capital, while Karachi is its largest city and financial center. It is the site of several ancient cultures, including the 8,500-year-old Neolithic site of Mehrgarh in Balochistan, the Indus Valley civilization of the Bronze Age, the most extensive of the civilizations of the Afro-Eurasia, and the ancient Gandhara civilization.

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Spurred by the Pakistan Movement, which sought a homeland for the Muslims of British India, and election victories in 1946 by the All-India Muslim League, Pakistan gained independence in 1947 after the Partition of the British Indian Empire, which awarded separate statehood to its Muslim-majority regions and was accompanied by an unparalleled mass migration and loss of life.

Politically, this Islamic State is a middle power nation, and has the world’s sixth-largest standing armed forces. It is a declared nuclear-weapons state, and is ranked amongst the emerging and growth-leading economies, with a large and rapidly-growing middle class. Pakistan’s political history since independence has been characterized by periods of significant economic and military growth as well as those of political and economic instability.

What is the Financial Crisis and the Fall of Pakistan?

In case you have been asking the question, what is the financial crisis and the fall of Pakistan, we have prepared some of the events that led to both the crisis and the fall of this very powerful country, even with all its sovereignty in the world.

Economic Crisis of the Nation

Pakistan’s foreign reserves have reportedly dwindled to a mere $3.7 billion, barely enough for a few weeks of energy imports to keep its cities and businesses running, while its public debt has grown to a staggering $270 billion. The Pakistani crisis unfolded as domestic and external imbalances started to worsen rapidly in the early months of 2008. Inflation accelerated and soared to 25 per cent from a rate of 7 per cent in the preceding year.

Pakistan, India’s neighbour, has been in a tight spot over its economy for some time now. Amidst very high inflation and extremely low forex reserves, the country has been denied further funds from the International Monetary Fund (IMF). This is an important development in international affairs and is hence a relevant topic for the IAS exam. In this article, you can read all the latest about the economic crisis in Pakistan.

A delegation from the IMF arrived in Pakistan to attempt last-ditch negotiations to restart crucial financial aid that has been frozen for months. As Pakistan fights a worsening economic crisis, the country’s prime minister claimed that the government would have to accept “beyond imagination” IMF bailout requirements.

For fear of reaction before the upcoming elections in October 2023, the Pakistani administration has refused to implement the tax increases and subsidy reductions that the IMF has required.

The results of the Pakistani economic problems are:

  • High Inflation: Pakistan experienced a high inflation in 2022 of about 24.5%. The percentage was about 29% higher in rural Pakistan.
  • High Indebtedness: Pakistan has long struggled with a number of issues; its current condition is not new. Due to this, Pakistan is heavily indebted to friendly countries and the International Monetary Fund (IMF).
  • Weak External Position: Pakistan was finally taken off the Financial Action Task Force (FATF) grey list in 2022, after being on it for many years. This had an impact on Pakistan’s standing globally and led to the imposition of several economic sanctions.
  • Food Crisis: The cost of perishable foods has increased by over 56%. In Pakistan, the cost of wheat flour has been steadily rising to uncomfortable proportions.
  • Rising Terrorism: In an effort to split Pakistan into two countries, Tehreek-e-Taliban Pakistan (TTP) has increased its terrorist activities there since 2022.

Some of the major reasons for the current situation in Pakistan are:

2022 floods: The floods in Pakistan in 2022 cost the nation an unprecedented $3 billion in damages, destroyed essential infrastructure, uprooted 8 million people, and reduced domestic output.

Economic policies that are inconsistent and procyclical: Many of Pakistan’s growth-enhancing initiatives came at the expense of growing vulnerabilities and enduring structural and institutional shortcomings.

Local problems: According to analysts, Pakistan’s distribution challenges are more of a concern than its insufficient supply levels, which have led to shortages and price increases.

Fall of the Political Empire of Pakistan

Everything is rotten in the state of Pakistan. Late in February, Hizbul Mujahideen overlord and US-designated terrorist Syed Salahuddin led the funeral prayers of fellow killer Imtiyaz Alam aka Bashir Ahmad Peer. Alam was one of India’s Most Wanted. Salahuddin carries a bounty of  $10 million, but that didn’t stop him from appearing in public.

Significantly, the ceremony was held at the Pakistan Army burial ground in Rawalpindi and attended by ISI hot-shots, indicating the terrorist was treated by the Pakistan military as one of its own. In the same week was also buried Pakistan’s hope of a bailout from the International Monetary Fund (IMF). But the funeral is yet to be held.

But who is responsible for Pakistan’s descent into hell? In 1958, the first military-dictator of Pakistan, General Ayub Khan, had a startling epiphany, which cannot be explained even by the best meteorologists. After he overthrew the government of Iskander Mirza, Ayub announced that democracy doesn’t function in hot climates like Pakistan’s and can flourish only in cold countries like Britain.

With Sharif feeling the heat and Pakistan out in the cold because of its terror games, Ayub’s ghost will be feeling vindicated now. The country is broke. Its rupee fell to a historic low of 272 to the US dollar last month. Inflation hovers over 27 percent. Foreign reserves have shrunk to $3.2 billion. Public debt is a gigantic $270 billion, which exceeds government expenditure.

Pakistan’s moribund civic structure is also plagued by power cuts—in January, a nationwide blackout plunged the country into darkness for 24 hours. Most neighborhoods aren’t safe; crimes like murder, kidnapping and theft are on the rise after the October 2022 floods drowned nine million people in poverty. The Ukraine war has compounded the crisis by forcing Sharif to enter a bidding war with other developing countries over ill-affordable liquid natural gas, which Pakistan needs to keep the lights burning at home.

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