Pakistan is a country in crisis. The country is struggling to stay afloat on all fronts – economic and political- while facing the threat of home-grown terror organizations. Much will be needed to keep the state and its people from collapsing under the weight of its complex, multilayered troubles.
The country’s economy is on the brink of collapse. Islamabad is perilously close to defaulting on its foreign debt. At the beginning of the year, Pakistan’s external debt was estimated to be USD 274 billion, which is more than three-quarters of the country’s GDP. Its foreign exchange reserves sank to an eight-year low, falling below USD 6 billion, in December 2022. With $33 billion to be paid off in FY 2023, Islamabad is staring at a potential loan default. With the national currency trading at its lowest, at 230 Pakistanis Rupee to the dollar, Pakistan has had to put its Washington embassy property on the market.
Global inflation and rising prices have dealt a severe blow to Pakistan’s economy, which has been struggling to find a firm footing for years. Food prices are high, and stocks are running low. The country is facing a severe shortage of wheat, one of its staple foods, with people queuing for hours to get a sack of wheat flour. Still reeling from the 2022 floods that destroyed more than 2 million homes, those displaced are now staring at the prospect of going hungry as the winter draws on.
The energy needs of 220 million nationals are primarily met with imports. The unnaturally high natural gas prices owing to the Ukraine war added to Pakistan’s woes. Natural gas makes up more than a third of the country’s power needs. With oil traders shunning the nation dealing with “severe liquidity” issues, the country’s power grid collapsed, plunging much of its citizens into darkness. Energy shortage is crippling everyday life, with much of the country facing power cuts and businesses forced to down shutters at sundown.
But, more than government orders and interim measures, like power cuts, to reduce power consumption is needed. With elections likely to be held later in the year, Prime Minister Shehbaz Sharif’s administration is caught between the devil and the deep sea. With the ousted Prime Minister Imran Khan relentlessly attacking the government, its policies, and failures, the political climate is far from conducive to imposing stringent measures. Despite the no-confidence motion that threw him out of office, Imran Khan’s popularity and support among the masses cannot be discounted. While his party, the Tehreek-e-Insaaf (PTI), blames the current government for the latest financial turmoil, Pakistan’s blotched policies are far from a one-off.
Islamabad’s chequered relationship with terror outfits is another cause for worry. After decades of “fighting” some terrorist organizations while harboring other extremist outfits, the country is now facing the music. Pakistan has openly shown its soft corner for the Afghan Taliban and offered them asylum within its territories. Emboldened by the success of their brothers across the border, the Pakistani arm of the Taliban, the Tehreek-e-Taliban Pakistan (TTP), has stepped up attacks within the country, mainly targeting security personnel.
TTP was birthed by Pakistan’s Inter-Services Intelligence (ISI) primarily to carry out terrorist attacks in the Indian state of Kashmir. The TTP has three stated goals – to conduct jihad against the government, support the Taliban brotherhood and enforce Sharia Law in Pakistan. Their latest attack, a bomb blast in a mosque in Peshawar, claimed at least 100 lives. The challenge posed by the insurgency to Pakistan’s sovereignty cannot be ignored. Should conditions worsen, extremist outfits like the TTP and others will find it easier to prey on the starving and hopeless population, both for recruiting personnel and amassing support for their causes.
Desperate to save the state, Prime Minister Shehbaz Sharif is knocking on all doors. Saudi Arabia, a long-time ally of Islamabad, loaned USD 3 billion in December 2022. The Saudi Crown Prince is reported to have asked concerned departments to look into the prospect of raising Riyadh’s investments in Pakistan to USD 10 million. Another USD 2 billion may be deposited into the country’s central bank to shore up its finances. With a wealthy ally like Saudi backing the country, there is some ray of hope for the people of Pakistan.
It is estimated that thirty percent of Pakistan’s foreign debt is owed to China. Islamabad had signed on to President Xi Jinping’s Belt and Road Initiative to boost foreign investment and update its infrastructure. With USD 2.1 billion due to Beijing in March, it would be interesting to see how the two countries navigate the volatile situation. The scope of international aid from countries like China and Saudi Arabia will depend mainly on how the IMF responds to Pakistan’s crisis.
Stalled talks with the International Monetary Fund have resumed, and Islamabad is seeking USD 1.2 billion of its USD 7 billion bailout package to avoid loan default. In return, the IMF wants Pakistan to ease fuel subsidies and the currency exchange rate to be determined by the markets, thus removing its artificial cap. New taxation, restructuring of power sector debt, and increasing energy prices are also stipulations for the bailout.
Even with international aid, it will be months before Pakistan’s economy turns the corner. With the people facing food shortages, energy crunches, political unrest, and rising terror attacks, it is time for Islamabad to consider a paradigm shift in its policies.
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Republished with permission from TIPP Insights
