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Russia’s invasion of Ukraine is causing fallout in the unlikeliest of places: Pakistani tea shops

June 16, 2022, 7:04 AM UTC

Pakistan is facing an economic crisis. With high inflation, fuel shortages, and billions of dollars in upcoming debt payments, the country now only has enough foreign reserves to cover less than two months of imports.

One senior minister is suggesting a novel way ordinary Pakistanis can help the country through this crisis: by giving up their chai.

“I appeal to the people to reduce their tea drinking by one or two cups a day because we also borrow money for the tea, which is imported,” Ahsan Iqbal, Pakistan’s Federal Minister for Planning, said on Tuesday.

Pakistan is the world’s largest tea importer, importing $646 million worth in 2020, according to the Observatory of Economic Complexity. (The U.S. is the world’s second largest importer, at $473 million, and Russia is the third, at $413 million.) 

If Pakistanis drink less tea, that would free up more money to spend on fuel imports and other necessities. Governments use reserves of foreign currency to finance imports, either when they buy foreign goods directly, or provide foreign currency to commercial banks to facilitate currency conversions for private-sector importers.

Foreign currency reserves are replenished when exporters are paid for their goods. Yet when a country consistently imports more than it exports—as Pakistan does—a government may have to borrow to make up the shortfall. Hence why Iqbal says Pakistan is borrowing money to pay for people’s tea.

Pakistani citizens—already hit with increasing fuel prices caused by slashed subsidies—ridiculed the proposal.

“Yesterday Ahsan Iqbal asked us to consume less tea, and tomorrow they may say eat less. Is it a solution?” the owner of a roadside tea stall on the outskirts of Islamabad said to the Associated Press.

With spiking commodity prices, Pakistan is running out of the currency it needs to pay for everything it imports. The country’s foreign reserves dropped below $10 billion in early June, a 50% drop from last August. Pakistan has also been forced to pay sky-high prices for natural gas on the spot market, after Russia’s invasion of Ukraine disrupted shipments from the country’s usual gas suppliers.

Pakistan reported 13.8% inflation in May, Asia’s second highest. Only Sri Lanka—currently in the middle of an economic meltdown—is worse, reporting 39% inflation.

The country also owes $3.2 billion in debt payments this year, according to Bloomberg, which could further reduce its foreign reserves.

Pakistan is one of several developing countries pushed into crisis by the economic effects of the Ukraine invasion. Earlier this year, Nepal barred nonessential imports and slashed working hours to help preserve its diminishing foreign currency holdings.

Meanwhile the South Asian island of Sri Lanka is in full-blown economic meltdown. The country faced food and fuel shortages as the government instead prioritized payments to its foreign creditors. Protests ousted Sri Lanka Prime Minister Mahinda Rajapaksa, and the new government is currently in negotiations with the International Monetary Fund and other governments for a bailout package. The government has even asked civil servants to take an extra day off each week to help grow food.

Even developed economies are feeling the crunch. Both Japan and Australia have asked consumers to reduce their electricity consumption as fuel stores come under strain. In late May, Japan’s trade minister suggested households “gather around a single television” to save electricity. 

Four-day workweeks

Prime Minister Shehbaz Sharif, who ousted his predecessor Imran Khan in a no-confidence vote in April, has spent his first months in office trying to chart a path out of the crisis.

Pakistan barred imports of all nonessential luxury goods, like cars, cosmetics, and home appliances, in May, in an effort to preserve its foreign currency. The country also asked traders to close their stalls at 8:30 p.m. and removed Saturday as a workday to reduce fuel consumption. One Pakistani province has gone even further in asking employees to work from home on Fridays.

Pakistan is also planning regular blackouts to save fuel—potentially dangerous for households trying to survive a record heat wave without air-conditioning. 

With Pakistan increasingly shut out of bond markets, Sharif is currently negotiating with the IMF to unlock the last $3 billion of a bailout package agreed upon in 2019. The prime minister agreed to lift fuel-price caps, increase taxes on the wealthy, and slash the budget deficit in order to mollify the lender-of-last-resort.

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