The economic crisis in Pakistan deepens…

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Many of the particular root causes of Pakistan’s situation are different than in Sri Lanka — they didn’t ban synthetic fertilizer or engage in sweeping tax cuts. The political situations of the two countries, though both dysfunctional, are also different (here is a primer on Pakistan’s troubles). But there are enough similarities at the macroeconomic level that I think it’s worth comparing and contrasting the two.

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In my post about Sri Lanka, I made a checklist of eight features that made that country’s crisis so “textbook”:

  • An import-dependent country
  • A persistent trade deficit
  • A pegged exchange rate
  • Lots of foreign-currency borrowing
  • Capital flight
  • An exchange rate crash (balance-of-payments crisis)
  • A sovereign default
  • Accelerating inflation


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