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Business News/ News / World/  Pakistan economic crisis: Many firms closed, inflation high, forex reserve falls
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Pakistan economic crisis: Many firms closed, inflation high, forex reserve falls

Pakistan is in panic after the IMF team that came to negotiate the details left without reaching a final agreement last week.

Cars, tires, textile factories have shut in crisis-hit Pakistan. (Reuters)Premium
Cars, tires, textile factories have shut in crisis-hit Pakistan. (Reuters)

Pakistan economic crisis: Several biggest companies in the crisis-hit country have halted operations as they ran out of raw materials or foreign exchange which has compounded the troubles of an economy that's trying to avert a debt default, as per Bloomberg reports. 

According to a stock exchange statement on Friday, the local unit of Suzuki Motor Corp extended the shutdown of its manufacturing plant to February 21, saying the parts shortages are persisting. 

Ghandhara Tyre & Rubber Company, which manufactures tires and tubes for automobiles, shut its plant on February 13, saying it’s facing “immense hurdles towards importing raw materials and obtaining clearance of consignments from commercial banks."

These are just two out of a cluster of listed companies that includes manufacturers of fertilizers, steel, and textiles that have shut their factories indefinitely or suspended operations intermittently as they grapple with a shortage in inventory or cash or even a drop in demand. 

Tahir Abbas, head of research and investment at Arif Habib Limited said that these closures will impact economic growth as well as increase unemployment levels in the country. 

“The overall demand has tapered off because of the multi-decade inflation. So you see normal demand destruction. Over and above this, we are taking administrative measures to slow down the economy," Abbas said as quoted by Bloomberg. 

Like Suzuki, Honda Motor Co. and Toyota Motor Corp.’s local units also went through weeks-long plant closures. This weighed on Pakistan’s car sales which fell 65% to the lowest in almost three years in January compared to a year ago, according to Pakistan Automotive Manufacturers Association data. 

Among those that have also shut or slowed operations are GSK Plc’s Pakistan unit, Engro Fertilizers Limited, Fauji Fertilizer Bin Qasim Limited, Nishat Chunian Limited, Amreli Steels Limited, Millat Tractors Limited and Diamond Industries Limited. 

“The situation this time has become very critical as compared to the crises we had seen in 2018 or 2008," said Abbas who expects economic growth to slow to a range of 1%-1.25% this fiscal year ending June from 6% a year ago.

Amid the growing concerns of economic turmoil, the prices of essential items are surging like milk costs 250 per litre, and chicken prices have shot up to 780 per kilogram in the country, while defense minister Khawaja Asif declared that the country has already gone “bankrupt".

Pakistan's external debt servicing rose by 70% in the first two quarters of 2022-23, worsening the shortage of dollars, Dawn reported. The country's foreign exchange reserves held by the central bank rose by US$276 million to $3.193 billion for the week of February 10. The country's total liquid foreign exchange reserves stood at $8.702 billion. 

The country is in panic after the IMF team that came to negotiate the details left without reaching a final agreement last week. Even though Finance Minister Ishaq Dar and Prime Minister Shehbaz Sharif agreed to all the preconditions. Now, Pakistan has also increased taxes and fuel prices.

 

(With Bloomberg inputs)

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Published: 20 Feb 2023, 10:25 AM IST
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