Ukraine war brings Pakistan to the brink, ex-premier Imran Khan warns of economic 'collapse'

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Pakistan's economy is on the brink of "economic collapse" according to former Prime Minister Imran Khan, putting more pressure on its vulnerable position after decades of corruption, mismanagement, and unstable governance.

A report by Michael Rubin, a senior fellow in Washington-based magazine National Interest, also warned of the collapse of Pakistan's economy.

Citing the fallout of the Russia-Ukraine war, the reports said that it is having a negative effect on the economy of Pakistan.

"Russia's invasion of Ukraine sent economic shockwaves across not only in Europe but also in the broader Middle East. Pakistan, whose economy is already weak because of decades of corruption, mismanagement, and unstable governance, has been particularly vulnerable," the report reads.

It also highlights that because of the war in Eastern Europe, Islamabad requires wheat from both Russia and Ukraine.

"While many countries are dependent upon Ukrainian or Russian wheat or foreign energy imports, Pakistan requires both. Between July 2020 and January 2021, for example, Pakistan was the third-largest consumer of Ukrainian wheat exports after Indonesia and Egypt," according to the report.

It also points out that Pakistan is currently marred with huge inflation and its trade deficit also reflects the country's sorry state of affairs. It points out that Pakistan's trade deficit of USD 50 billion as of June is a whopping 57 per cent increase over the previous fiscal year.

This is not a situation which should be seen in isolation. The collapse of Pakistan's economy will show repercussions on Afghanistan as well. Afghanistan's Chamber of Commerce and Investment (ACCI) said that the collapse of Pakistan's economy will have a negative effect on Afghanistan, reported TOLO News.

"If the prices of wheat and flour are cheap in Afghanistan, it will be smuggled, but so far there is no concern in this regard, and there is no doubt that Pakistan is facing an economic crisis," said Khanjan Alikozai, a member of the ACCI.

The article in National Interest said that the price spike in oil prices has hit Pakistan hard is augmenting the cost of its imports by more than 85 per cent, to almost USD 5 billion, just between 2020 and 2021.

"The collapse of the economic system of Pakistan will have dire consequences for Afghanistan as well, it will have a negative impact on export and imports, regional projects such as CASA 1000, the TAPI project, and trade," said Shakir Yaqoobi, an economist.

It also stresses on Pakistan's rupee which is hitting a new low with every passing day. Pakistrupee continues to "haemorrhage value when compared to the US dollar," off more than 30 per cent over the past year.

The Pakistani rupee has dropped to a record low against the US dollar with the exchange rate sliding to PKR 212, local media reported on Monday.

Pakistan's former prime minister said Wednesday that the government of premier Shahbaz Sharif is mismanaging the country’s fragile economy.

Imran Khan's remarks to journalists at his residence in Islamabad came hours after Pakistan’s currency plummeted to an all-time low of 225 rupees against the U.S. dollar, amid increasing political instability. The delay in the release of a crucial $1.17 billion installment from the International Monetary Fund to Islamabad has also added to the existing economic crisis.

The fund last week said it reached a preliminary agreement with Pakistan to revive the $6 billion bailout package. But the deal is subject to approval by the IMF's executive board.

On Wednesday, Khan said he “worries” that Pakistan is teetering near an “economic collapse.” A spokesman for Sharif did not immediately respond to a request for comment.

He said a looming crisis “all started after my government was ousted.” He reiterated his call for snap elections, a demand already dismissed by Sharif and his allies.

Khan came into power following the 2018 parliamentary elections, but he lost a majority in the National Assembly in April when his allies and about two dozen lawmakers from his own Tehreek-e-Insaf party abandoned him.

Khan's removal in April came amid his cooling relations with Pakistan’s powerful military, which many of Khan's political opponents allege helped the former premier, Khan, come to power in general elections in 2018. The military has directly ruled Pakistan for more than half of its 75 years and wields considerable power over civilian governments.

Since his ouster, Khan has criticized the country's powerful army chief, Qamar Javed Bajwa, saying he was also part of the greater plot aimed at removing him from power. The military has denied the charge.

Khan also insists his government was ousted under a U.S. plot, a charge Washington denies.

When Khan was in power, Pakistan’s foreign reserves rose to over $18 billion, which dipped to $10 billion recently. Khan says he can revive the country's economy with the help of his team if he gets another chance in office.

In recent weeks, Sharif has slashed subsidies on fuel, electricity and natural gas to meet IMF’s conditions. It has made Sharif’s government highly unpopular and caused a spike in food prices.

Over the weekend, Sharif faced a major political setback when Khan’s Tehreek-e-Insaf party won elections in the country’s most populous province. Khan's party won 15 seats out of 20 that were up for in the 371-member provincial assembly in Sunday's vote.

That brings the overall number of seats held by Khan’s party and their allies in the chamber in Punjab to 188. He needs 186 lawmakers' backing to rule the Punjab province. On Friday, the Punjab Assembly will elect its new chief minister to replace Prime Minister Sharif’s son Hamza Shahbaz who currently holds the post.

On Wednesday, Khan reiterated his demand for the snap vote.

“The only solution to the current political and economic problems is the holding of fresh elections," he said.

But Sharif and his allies have rejected Khan's demand, saying the next elections will be held as per the schedule next year. They also blame Khan for the current economic crisis.