Bankruptcy is lawful process in which Enterprises or other institutions who take loans and later cannot pay their debts to mortgage holder may lost their properties. it is imposed by a court, led by mortgage holder.
Why Pakistan?
Is Pakistan following the step of Sri Lanka’s bankruptcy, impacted by this “devastating” flood of the decade and political instability? Worries exist.
As of September, the flood in Pakistan has taken 1481 lives and caused economic losses of 40 billion US dollars, according to the Pakistan National Disaster Agency.
Other than that Pakistan’s political instability also playing a big role in Pakistan’s inflation. PTI chairmen Imran khan along with thousands of peoples started Azadi long march this month will also shutter down businesses for a long time.
Flood 2022?
The raging floods have submerged a third of the country, affecting more than 33 million people and destroying more than a million homes.
After a major disaster, there must be a severe epidemic. The flooded areas have become breeding grounds for mosquitoes,
but people have no shelter and no mosquito nets for protection, which leads to the rapid spread of infectious diseases.
More than 10,000 cases of skin infections, diarrhea and acute respiratory diseases are reported daily in Pakistani medical camps.
This round of disasters has severely hampered Pakistan’s economic operations. The floods have caused 7,000 containers to be trapped on the road between Karachi and Chaman.
On the Afghan border in southeastern Kandahar, but shipping companies have not waived demurrage fees for shippers and forwarders.
Major shipping lines such as Yang Ming, OOCL and HMM, as well as other smaller shipping lines, have charged as much as $14 million in demurrage.
Traders said they were being charged between $130 and $170 a day per container for holding unreturnable containers.
Economic Damage
” According to a Pakistani trader Tahir Achakzaim : “So far, I have a container that has been detained for 11 days, and now the demurrage charge has reached $1,870, while the freight from Shanghai to Karachi is just about $2,000. The carrier doubled my costs and their revenue.”
”He added: “It is difficult to know exactly how many containers were flooded and trapped and the value of the cargo in those containers, so now we are just doing rough estimates.”
The economic damage caused by the floods in Pakistan is estimated to exceed US$10 billion, which has weighed heavily on its economic development. Standard & Poor’s has downgraded Pakistan’s long-term outlook to “negative”.
First, foreign exchange reserves in this country have dried up. As of August 5, the foreign exchange reserves held by the State Bank of Pakistan stood at $7.8303 billion, the lowest level since October 2019, which was barely enough to cover a month’s worth of imports.
The Falling Pakistani Rupee?
To make matters worse, The Pakistani rupee has been falling against the US dollar since September.
On Monday, data shared by the Foreign Exchange Association of Pakistan (FAP) showed that as of 12 noon, the rate of the rupee was 229.9 rupees per dollar, equivalent to a depreciation of 0.75%.
The floods destroyed about 45% of the local cotton production, which will further exacerbate the economic plight of Pakistan,
As cotton is one of Pakistan’s most important cash crops, and the textile industry is the country’s largest source of foreign exchange earnings. Now Pakistan is expected to spend $3 billion to import raw materials for the textile industry.
At this stage, Pakistan has strictly restricted imports, and banks have stopped issuing letters of credit for unnecessary imports.
On May 19, the Pakistani government has announced a ban on the import of more than 30 non-essential and luxury goods in an effort to stabilize dwindling foreign exchange reserves and rising import bills.
On July 5, 2022, the Central Bank of Pakistan once again promotes a foreign exchange control policy.
For some products imported into Pakistan, importers need to obtain approval from the central bank before they can pay foreign exchange.
According to the latest regulations, no matter whether the amount of foreign exchange payment exceeds (including) 100,000 US dollars, it is necessary to apply for approval in advance.
But this policy seems not be a help, for now Pakistani importers are trying to smuggle to Afghanistan, paying in US dollars in cash.
Analysts believe that Pakistan, with severe inflation, soaring unemployment, shortage of foreign exchange reserves and rapid depreciation of the rupee, will likely follow in the footsteps of Sri Lanka to a collapsed economy.