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Pakistan is staring down the barrel of the economic gun The Statesman 26 Oct 2021
The Dawn newspaper in a report on 22nd Oct stated that Pakistan’s advisor to the Prime Minister on financial matters, Shaukat Tarin, left Washington without concluding talks with the IMF for the next tranche of USD 1 billion from the approved USD 6 Billion loan. The reason stated was that ‘the (Pakistan) government was reluctant to take certain steps needed to reduce the ever-widening gap between revenues and expenditure.’ Pakistan’s unwillingness to accept IMF terms was that it would lead to price hikes impacting the ruling dispensation, especially as elections draw close.
A report in the Economic Times stated that Pakistan needs an infusion of USD 51. 6 Billion in the two-year period (2021-23) in order to meet its financial obligations. The article quotes a conservative estimate of the IMF which mentions that Pak’s ‘external financing requirement stands at USD 23.6 billion in 2021-22 and USD 28 billion in 2022-23.’ In case talks fail with the IMF, funding from other sources including the World Bank and Asian Development Bank remain at risk. 28% of Pakistan’s debt is owed to China, a figure which was 9% in 2013. This will only grow.
Simultaneously, China demanded USD 38 Million as compensation for loss of lives of its nine engineers, employed on the Dasu hydropower project, in a terrorist strike. At the current exchange rate it works out to Rs 73 Crores per individual. China has stated that work on the project would only recommence once the amount has been paid and additional security ensured. Pakistan has constituted a committee to deliberate on the Chinese demand as also negotiate with China on the amount.
A Pak media report of Sep this year stated that as per the State Bank of Pakistan, the government’s debt increased to Rs 39.9 trillion, of which 14.9 Trillion was in the past three years of Imran’s reign. This has been accentuated by large public borrowings during the COVID pandemic. There was some relief with the IMF handing over 2.75 billion under a Special Drawing Rights program for battling COVID. The World Bank included Pakistan in the top ten nations with largest foreign debts.
Added to these miseries is the fact Pakistan will continue to remain on the Grey List as it has failed to fulfil FATF’s basic requirements. In a paper titled, ‘Bearing the cost of global politics — the impact of FATF grey-listing on Pakistan’s economy,’ Naafey Sardar states that the impact of Pakistan being in the Grey List from 2008-2019 has been USD 38 Billion on its GDP. With the current extension on the Grey List, the impact is bound to accumulate. Obtaining fresh funding will remain a problem.
Pakistan’s current rate of inflation is around 9%, amongst the highest in South Asia. It has resulted in the current government facing anger of the masses. Added to this is that the Pakistan Rupee is losing ground daily against the Dollar, currently as low as Rs 174. Pakistan’s foreign exchange reserves, as per CEIC data, stood at USD 17.6 Billion in September, sufficient to cater for 2.7 months of imports.
China, Pakistan’s bosom ally, has been stalling the CPEC for multiple reasons, one being Pakistan’s inability to invest its share of funds in various projects. On the other hand, Pakistan seeks to renegotiate the terms and conditions of power projects as costs to consumers rise. In addition is the growing internal security instability which has added threats to Chinese workers and CPEC projects. Gwadar is moving towards a complete stall, as reports indicate that China’s focus is shifting towards Karachi. Attacks on Chinese workers continue, despite Pakistan raising two division worth troops for their protection.
Corruption within the Pak polity, bureaucracy and military hierarchy is legendary. The top echelons of these institutions rarely stay in Pakistan, having invested their income in purchasing property and businesses abroad. The recently released Pandora papers had senior military officials apart from politicians, close to the current ruling elite, listed. Reports state that many military names were suppressed, and the media warned not to mention them.
Turkey, another close ally of Pakistan is sharing the same cell in the FATF Grey List. Its own economy is in tatters. Pakistan’s other aid providers, Saudi Arabia and the UAE, are hesitating in providing further loans. They are aware that returns are unlikely. On the contrary, they prefer investing in India. Saudi has hinted to Pak that in case it desires financial support, it must change its policies towards India and terrorism. The Pak army has thus far refused to bite.
To worsen the economic scenario is depleting relations between the US and Pak. This has added to pressures from the FATF and delay in loans from the IMF. Relations soured after Afghanistan when Pakistan refused to grant a base to the US. Recent reports suggest that the Biden administration is in talks with Pakistan for overflights to engage targets in Afghanistan. Pakistan has denied this statement.
With instability on the rise in Afghanistan accompanied by food shortages, there is pressure on Pakistan’s border with Afghanistan. Added inflow of refugees will add to Pakistan’s concerns. Its calls for the global community to engage with the Taliban government has been unheeded. Instability in Afghanistan will enhance security concerns in Pakistan’s western provinces which are witnessing a revival of TTP (Tehreek-e-Taliban Pakistan) and Baloch insurgencies.
In this state of economic collapse, Pakistan cannot risk added tensions with India. Therefore it has adopted a strategy of selected targeting to create an environment of fear in the valley, leading to a migration, utilizing local terrorists. One of the reasons for the ceasefire is its poor economic condition. India has not witnessed any reduction in terrorism and infiltration attempts post agreeing to the ceasefire. Hence, to add pressure on Pak, India must consider declaring the ceasefire null and void. It must push Pak further economically downhill by insisting, in global forums, that loans to Pak must be contingent on it giving up supporting terrorist groups. Pakistan must learn that enmity with India can be damaging.