Pakistan’s economy continues to struggle as it continues to borrow money to pay off the debts it had taken earlier. Due to this vicious cycle of debt and partial payments, the economy has been spiralling out of control, and a financial catastrophe has been brewing for some time.
According to a story in The Express Tribune, if Islamabad fails to deliver its $500 million debt payment, most of which is payable to a commercial bank in China, the nation could plunge into an economic abyss within the next 48 hours. By the end of 2021, Pakistan’s external debt had risen to $126 billion. For the $1.512 trillion Pakistani economy, failure to service $500 million of this amount to China within the next 48 hours risks initiating a calamitous chain of events. Apart from this, another loan of $300 million will have to be repaid by Pakistan to the same Chinese bank by the last week of February.
Pakistan only has around $4.1 billion in foreign exchange after it repaid $328 million guaranteed debt to China which the country had taken to set up power plants. After the current due is paid, the foreign exchange reserve will drop to just $3.5 billion.
The easing of Pakistan’s crippling debt is Islamabad’s top priority, given the plight of the economy there and the political unrest in the highly radicalised Islamic Republic. Islamabad has now contacted Washington to persuade the Bretton Woods organisation to be lenient on the Islamic Republic as it requires PM Sharif to increase energy bills and impose more taxes to raise money. This is because Islamabad has to accept very strict IMF conditions for further loans to Pakistan. Such drastic measures would be politically damaging for the current Pakistani leadership and give Imran Khan a chance to return during the next election.
While Pakistan has requested a bailout package from the IMF, the IMF has not taken a decision on the matter yet. It is being said that if the country fails to secure assistance from IMF, it will default on loan payments.
Owning to the precarious economic situation in Pakistan, the country is already experiencing its worst-ever flour crisis. People swarm around cars, pushing each other, as chaos frequently erupts around mini-trucks and vans distributing flour. Numerous altercations at flour vendors and tandoors have also been reported.
Pakistan has truly manifested the famous Hindi idiom ‘gareebi mein aata geela’ which means, misfortune seldom comes alone. In addition to running out of money, Pakistan has also run out of flour to feed its population, and the country is facing massive power cuts as well.
Things wouldn’t be as horrible if the economic front was the only one where Pakistan was struggling. Along with the economy’s collapse, the country is also struggling with terrorism as Tehreek-e-Taliban Pakistan continues to flourish. TTP had even declared a parallel government in the country earlier this month.
With no solution in sight, Pakistan’s crisis is getting worse by the day as one problem feeds into the others. Put bluntly, Pakistan is sinking, but the people of Pakistan appear to believe they will survive these trying times because the rest of the world cannot afford to let them perish. However, until and unless Pakistan is prepared to help itself, the world doesn’t seem willing to step in and save the day. However, Pakistanis are more focused on the political circus than the comprehensive economic reforms that could help them escape the quagmire they find themselves in.
The economy has reached its lowest point as a result of the excesses of Pakistan’s elite lawmakers, military personnel, civil servants, landed aristocracy, and business and trade organizations, who seized control of the state and its resources. At this moment, the emphasis is on preventing default, which would cause the economy to implode and unleash an unmanageable social and political conflagration in its wake. Although default will undoubtedly bring excruciating anguish, the unrepentant Pakistani elite is attempting to fear the rest of the world in order to keep Pakistan’s economy viable. The impending economic collapse is being used as a bargaining weapon, just as they attempted to exploit the floods to persuade the financiers to give them some leeway.
Essentially, Pakistan is terrorizing the globe by raising the spectre of nuclear weapons going awry and radical Islamists rampaging through the country and seizing power in a revolution. Despite how frightening they are, Pakistan is once again exaggerating these worries. Although Pakistanis may romanticize revolution, they lack the stomach for it, especially an Islamic Revolution that would most severely affect elite privilege.
The economy has reached a standstill, despite this. The collapse will likely be delayed until June 2023 if the IMF programme comes back on track by a few months, most likely by the end of the current fiscal year. Over the next six or so months, Pakistan will need about $10 billion. With the help of the IMF programme and contributions from the Chinese, the UAE, and Saudi Arabia in addition to Qatar’s $2 billion purchase of some assets, they will just about be able to raise this sum. This will however only last through June.
Pakistan will require an additional $30 billion or more in the upcoming fiscal year. Already, the IMF is placing extremely strict requirements on the reinstatement of the extended finance facility programme. These circumstances will not only be financially disastrous for the populace but also politically disastrous.
Because fuel prices will soar, power rates will increase, and gas prices will soar, inflation is predicted to increase by anywhere between 40 and 50%. The Pakistani Rupee will also lose value. Currency traders predict that the rupee will fall from its fictitious level of 230 to between 260 and 270 once it is allowed to float. Some economists worry that in a few months, the rupee may surpass the 300 level against the US Dollar. Massive inflation, which already hurts, will ensue from this.
Pakistan will need to increase interest rates to rein in inflation. The cost of conducting business will rise to unaffordable and unviable levels as a result. Even worse, any remaining strength in the government’s fiscal position will be destroyed by interest rate increases. Even at the present interest rate of 17%, there is a genuine risk that the cost of servicing the debt will exceed all federal receipts.
Pakistan must accept the harsh reality that default is unavoidable. The question is not if it will happen, but rather when. The only practical choice is to apply for a debt restructuring. However, the fact that it has such strict criteria will make the current IMF conditions appear light, making it almost as catastrophic as a default. However, the political and military establishments in Pakistan have been praying that the storm will miss them.
It is obvious that the generals and Pakistan’s elite do not want to reduce their privileges or spending, but they do want the rest of the nation to be willing to make sacrifices. They demand their royal customs, golf courses, and Dubai vacations; they send their children to Western institutions; they demand outrageous subsidies from the state’s empty coffers; but they deny the common people of Pakistan even the most fundamental right to life.
The Pakistani Army is similarly hesitant to reduce expenses. Pakistan can no longer afford the pricey weapon systems it keeps purchasing. And to make matters worse, it continues its expensive strategic escapades on both sides of the border. Only if the strategic environment improves, relations with India and Afghanistan are normalized without any legacy restrictions, and action is taken against terror organizations based in Pakistan can military budgets be reduced.
However, according to the Rawalpindi General Headquarters (GHQ), the current economic mess isn’t transpiring because the military has no intention to change the way it thinks about its strategy for dealing with India and Afghanistan. The tactical modifications did open up room in the past, not anymore. As a result of becoming aware of Pakistan’s cunning, New Delhi no longer feels the need to retaliate in kind for Pakistan-only tactical decisions. In any event, the Taliban are now displaying their true colours, and it appears that the western borderlands of Pakistan will continue to be unrest-ridden, unstable, and radicalized as a whole.
The political elite, much like military, is more concerned with protecting its political capital and safeguarding its political future than it is with saving the nation or its future. The political squabbling at a time when the nation is on the point of disintegrating is strange. Imran Khan wants elections held right away, believing he will win. The ruling coalition has nothing with which it can enter the hustings, therefore it wants to put off elections as long as it can. The Army seeks to maintain its position of power despite not wanting to harm democracy. It also opposes Imran Khan regaining power, at least not right now, and is prepared to use whatever means necessary to do so.
For the time being, it appears that the government will sign the agreement and rejoin the IMF programme. However, it will begin spending money in a month or two to regain its political backing. This means that Pakistan will be experiencing a crisis that is even worse than the one it is currently experiencing by the time elections are held and a new administration is in place. In other words, anyway you slice it, Pakistan’s economy, along with the country’s current state and political system, are doomed to failure.
