Earlier this month, Pakistan downgraded diplomatic and trade ties with India following Narendra Modi government’s decision to revoke the special status of Jammu and Kashmir and to bifurcate it into two Union Territories – Jammu and Kashmir, and Ladakh.
The Imran Khan government’s decision to suspend trade relations with India has come at a time when Pakistan’s economy is heavily dependent on financial aid from China, Saudi Arabia and International Monetary Fund (IMF).
As of June 2019, Pakistan's inflation was at 8.9 percent. The country’s foreign reserves stood at just $7.76 billion, which is even lower than Bangladesh’s forex reserves worth $32 billion, a report stated.
The GDP forecast of Pakistan has also been revised downward to 4 percent.
In yet another setback for the Imran Khan government, the United States on Saturday deducted the aid to Pakistan by almost $440 million, which will bring down US' commitment to the cash-strapped nation to just $4.1 billion.
As per a report, the aid was being given under the Pakistan Enhanced Partnership Agreement (PEPA) 2010.
Reportedly, Khan was informed of the US's decision to cut aid almost three weeks before his scheduled visit to Washington.
The PEPA was signed in September 2010 in order to make operational the Kerry Lugar Berman (KLB) Act, which was passed by the US Congress in 2009, under which the US was supposed to disburse $7.5 billion to Pakistan over a period of 5 years.
Initially, the aid granted to Pakistan under the KLB was almost $4.5 billion. However, after the cut, the aid will be restricted to $4.1 billion.