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Where Is Pakistan's Economic Crisis Headed?

MIN READJan 25, 2023 | 21:11 GMT

Vendors at a market warm themselves around a bonfire in Muzaffarabad, Pakistan, during a nationwide power outage on Jan. 23, 2023.

Vendors at a market warm themselves around a bonfire in Muzaffarabad, Pakistan, during a nationwide power outage on Jan. 23, 2023.

(SAJJAD QAYYUM/AFP via Getty Images)

Pakistan's economic crisis will worsen in the coming months as structural deficiencies and policy uncertainty raise recessionary risks in the country, which will exacerbate political instability and security challenges. Pakistan's high foreign debt has caused a severe financial crisis and speculations of default. The country's foreign exchange reserves are at a nine-year low, leaving the government unable to purchase essential imports like oil, gas, fertilizers and food items. Additionally, Islamabad has experienced persistent high inflation through most of the past year, with food inflation hovering around 30%. This is adversely affecting economic activity and causing hardships for millions (and particularly low-income people) in Pakistan. In 2022, the government imposed import restrictions on various commodities to save dollars, which has modestly lowered the current account deficit. But this has also slowed industrial operations across Pakistan, and has even caused shutdowns and layoffs in some sectors....

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