With the new government having taken over the reigns of the state and its troubled economy, the question of whether or not Pakistan will face a similar economic crisis as that of Sri Lanka is the talk of the town.
The present state of the country’s political and economic landscape alludes to a severe economic downturn.
It was only a matter of time before something went wrong. Disaster is always just around the corner, but you need to pay attention to small changes that indicate a larger problem is coming.
Considering the present economic state of Pakistan’s economy Vs Srilanka and political canvas, this crisis is likely to arise if left unaddressed.
Economic Condition of Pakistan
Why is Pakistan facing a similar economic crisis as of Srilanka? It’s because of the existence of similar crisis factors in the country’s economic instability.
The inflation has increased, the rupee has decreased in value, external debt is rising, and both fiscal and current account deficits have moved out of control.
While Pakistan’s fiscal budget for fiscal year (FY) 2022 is currently targeted at a rise of 17%, the country is facing a difficult future given a shrinking tax base.
However, increasing 63% indirect taxes and only 37% progressive taxes reflects the absence of forward-thinking strategies.
A new study by the World Bank claims that inflation in Pakistan is set to reach a new high in 2020. Experts say that if nothing is done, the country’s economic output will shrink 2%.
By the close of 2015, Pakistan’s external debt had fallen to an estimated $59.7 billion – a figure that in just six years rose to more than $130 billion in December 2021. Despite this massive accumulation of liabilities, however, country’s procurements continue unabatedly with no sign whatsoever of diminishing; conversely – and alarmingly – it appears as if borrowing is set for perpetual perpetuity!
Although its export of goods and services has been growing steadily for the past six years, its trade surplus actually shrank by a record $2.4 billion to $3.8 billion in FY.
As an emerging market, this country was unable to maintain its financial system, so the current account balance worsened and the trade deficit increased.
Additionally, the Pakistani rupee has depreciated by 4,100 percent in the last six months, from just 4.76 rupees per U.S. dollar in April.
In March 1972, the dollar was equal to about 200 rupees. This further compounded the country’s economic woes and pushed the economy to a similar path as the Sri Lankan economy.
It is said that there is another similarity between Pakistan and the Sri Lankan politico-economy.
In Sri Lanka, the Rajapaksa family has been in power for years. They’re still in charge today and they hold several positions of influence, including the presidency and the premiership.
In Pakistan, politicians too are facing criticism for familial politics, where fathers and sons dominate. It seems as if we are not learning any lessons from the past and it’s time to change things.
Tax revenue in Pakistan is lower than that of many other emerging economies and averaged 11% from FY 2010 to FY 2021.
The Sri Lankan rupee is in trouble. It’s falling, while inflation is soaring and foreign reserves have fallen to dangerous lows.
The political and economic instability of Pakistan mainly lies in the inability of the political leadership to reach consensus over serious issues, short-term policies to appease the masses like the ones that were implemented in Sri Lanka during the previous regime, and mismanagement of the economy over the years.
There are many factors that have led to the current economic situation, including the growth in the middle class, the decrease in the value of the Chinese Yuan and the fall in the demand for oil.
In many ways, Pakistan’s economic recovery is a bright spot in its otherwise dismal development record. However, the country still has a long way to go to emerge from poverty.
Pakistan has a very rich culture and history. It’s best to visit Pakistan as a tourist to experience its culture.
Pakistan is a near-food-sufficient nation while Sri Lanka is food insecure.
Furthermore, the Sri Lankan economic crisis has four main components: foreign exchange reserves, food, fuel, and medicines, while Pakistan only has three of those, excluding food.
Pakistan has entered into 23 agreements with the International Monetary Fund since it became a member of the international financial institution in 1962; Sri Lanka has entered into 16 such arrangements.
Pakistan faces a political crisis at a time when stability is needed to avoid an economic crisis elsewhere in South Asia.
Former Prime Minister Imran Khan was expelled from the Pakistan National Assembly earlier on 10 April, when his party received the vote of no confidence from members of the National Assembly.
When the current ruling party in Pakistan was replaced with a new party led by the Prime Minister’s brother, the country faced a very difficult time.
Pakistan’s problems illustrate that although desirable, abolishing hereditary governments and the executive presidency is not a cure for Sri Lanka.
In Pakistan, the ceremonial President is elected by parliament and serves a three-year term. It is not a position of power, and there is no reason to believe that the country will turn to this form of government if democracy is restored.
In conclusion, the current Pakistani economy has showcased many similarities with the Sri Lankan crisis, but the hope of a peaceful transition cannot be taken for granted.
The question of whether Pakistan may become another Sri Lanka is not simply a yes or no proposition. However, if the political leaders come together and agree to be consistent over economic matters, sideline political mudslinging, and come to an agreement to have consistency in the long-term economic policies, a crisis will be averted.
Economic condition of Srilanka
The present economic situation of Pakistan Vs Srilanka is very similar as in Sri Lanka presently, the economic growth is already very poor.
The country is in deep trouble financially. Its foreign reserves are depleted and the Sri Lankan rupee has depreciated to over 300 rupees against the dollar.
There’s a scarcity of food, and medicines, and people are facing more than 10 hours of load shedding.
Over inflation has escalated at a rate of over 13 percent. This has triggered political instability and a complete economic collapse.
It has hurt the industry and agriculture which in turn have worsened the already depressed conditions of Sri Lanka.
As the rising fuel prices and price-hike in the prices of basic goods become the norm, the people have taken to the streets in protest.Standing in line to get gas / groceries is something we’ve all had to do.
In Sri Lanka there was chaos and crisis as mobs of angry mobs burnt down the former Prime Minister’s (Mahinda Rajapaksa) house and stormed the prime minister’s office as the president fled the nation.
However, what caused such a disastrous downfall of Sri Lanka’s economy with over 20 million people, mostly dependent on agriculture and tourism, has been an outcome of many political and economic mistakes taken by the Rajapaksa government over the years.
In 2019, Gotabaya Rajapaksa was elected as the president of Sri Lanka and his brother Mahinda became the prime minister. **This is a free sample based on the sample used for the video above. You can access the full version of this article by clicking the link above.
The Rajapaksa regime introduced reforms to attract foreign investment, and allowed farmers to borrow up to 100% of their produce from the state-run Development Bank.
These policy decisions brought the country’s economy to its knees.
This caused the tax base to drop, making more than 1 million people eligible for exemptions from the tax system.
Agriculture is a bad business these days, as the fertilizer ban has decreased the productivity of land and reduced tea exports—a huge contributor to Sri Lanka’s economy.
This was one of the reasons why economies were affected adversely. Industries which were involved in the production of commodities lost jobs.
The economy began to witness a shortfall in revenue, increasing goods prices, decreasing reserves, and higher expenditure with increased international borrowing.
Sri Lanka’s economy was already struggling after the end of the civil war. And the new pandemic, and now the war between Russia and Ukraine, have only made it worse.
A country that has a big share in tourism is affected by a hurricane like Sandy. This may have an impact on tourism.
Therefore, the Sri Lankan Crisis is one of the key events for regional countries, such as Pakistan, which are on their way towards similar crises.
The Sri Lankan war was very different from the Pakistani conflict. In Sri Lanka the two sides had been fighting over the past few decades.
Inflation is high, it hit 13.4% in March, and if it continues at this pace, it will reach 14% by the end of the year.
The Pakistani rupee is devaluing against the dollar at an alarming rate. It has reached PKR200 in the interbank, the highest in Pakistan’s history.
It’s true that the fiscal and current account deficits are at record highs.
The global financial system is a big, complex system with a lot of moving parts. It’s not surprising that it can break down, and it does happen from time to time.