Pakistan, caught in a debt trap amid spiralling inflation, owes its mentors Saudi Arabia and the United Arab Emirates a huge debt of gratitude as the Middle East powerhouses stepped in with a timely loan waiver to stave off what would otherwise have been an inevitable slide into anarchy.
An International Monetary Fund team holding talks with Pakistan remains reluctant to release the $1.1 billion of the $6 billion package signed in 2019, with the visiting IMF team unconvinced that Pakistan will make the required structural changes to raise revenue.
This leaves Pakistan not just in a fiscal chokehold, but in an internal political churn. Pakistan PM Shehbaz Sharif’s coalition government must pull the economy back from the brink, but any belt-tightening will invite a backlash when he seeks a fresh mandate to rule later this year.
Adding to Sharif’s angst is former PM Imran Khan’s unrelenting tirade over his “unelected” status after the popular cricketer-turned-politician upped the ante over the Pakistan Army-engineered “constitutional coup” that removed him from office.
Adding to the challenge is the far more potent threat, from the breakaway Jamaat-ul-Ahrar faction of the Tehreek-e-Taliban, which unleashed a suicide bomber on Peshawar’s security forces killing a 100 policemen, reinforcing fears of the growing vulnerability of the military-intelligence establishment to the ‘nursery of terror’ that it has nurtured from within.
While Saudi Arabia and the UAE will unleash their firepower to subdue an Islamic Spring in Pakistan, the Gulf monarchies’ fiscal bailout does come with caveats. As Saudi Finance Minister Mohammed Al-Jadaan said at Davos in a not-so-veiled message to Islamabad: “We are becoming more creative in ways to support Pakistan, aligning with multilateral institutions to enable reforms and financial help.”
Clearly, this ‘begging bowl’ comes with strings. The IMF bailout is primarily aimed at meeting external debt repayments, with a 16 per cent depletion of the country’s foreign currency reserves, reducing the fund to $3 billion in the last week of January. A sum barely enough to pay for imports for the next three weeks as food reserves hit an all-time low. Container ships carrying imports are lined up at Karachi Port. But the government is unable to pay.
Privately run garment manufacturers, construction companies and the Sialkot sports hub are hobbled by the government snapping their line of credit, already under strain over forced power shutdowns. The recent countrywide power breakdown after the national grid collapsed plunged the nation of nearly 243 million people, its schools, hospitals and emergency services, and industry into darkness. Remittances have steadily shrunk as the educated elite park money in tax havens abroad.
After the 2022 floods, Pakistan’s agricultural mainstay is at risk, with millions of hectares of agricultural land in its food bowl, Punjab, wiped out. Damages were pegged at $40 billion.
The IMF had granted a $6.6 billion loan in 2013 when Nawaz Sharif served as prime minister, but lagging on a promised broadening of the tax base and privatisation of state-owned companies, Imran Khan who secured a fresh bailout in 2019, allowed the loan schedule to go off course. The IMF stepped in with a $1 billion loan after the floods but scrapped payments in November over the lack of fiscal consolidation. The IMF negotiating team, deaf to Pakistan’s pleas, only arrived in January for talks that Shehbaz has already described as “hugely disturbing”.
The required financial infusion of $1 billion that Pakistan seeks from the IMF to ease the financial crisis and stop defaults on its external debt repayments of $8 billion that must be paid by June requires Islamabad to introduce tougher measures.
During talks with the IMF, Finance Minister Ishaq Dar cited his government’s hike of petrol, electricity and gas prices, the introduction of a market-based exchange rate for local currency and additional taxes to contain the fiscal deficit as part of its fiscal prudence initiative. Both Sui Northern Gas Pipeline Ltd and Sui Southern Gas Company hiked natural gas rates by up to 75 per cent.
While China’s silence is intriguing, new-found patron Russia—if President Vladimir Putin can be called that—has stepped in to alleviate the fuel crunch. Under Russia’s ‘Look at Asia’ policy, Moscow offered a discount of 10–15 per cent on crude oil prices. The two nations are now exploring a flagship $3 billion Pakistan Stream Gas Pipeline Project that will provide crude oil and LNG, with prices dependent on the amount of crude Pakistan imports.
Sharif, aware of the rising popular anger against his Pakistan Democratic Movement coalition government, has called for an all-party meet as part of a strategy to get other parties, Imran’s Tehreek-e-Insaf in particular, to share responsibility—and the blame. Sharif, intent on bringing in an interim government of technocrats to take tough measures, has shifted the blame to Imran for the wrecked economy he inherited, citing the cricketer’s delay in approaching the IMF while pandering to the gallery by saying he wants to break away from the ‘begging bowl’ even as he introduced a slew of unsustainable welfare schemes that pushed the fiscal deficit up to $25.3 billion.
The people’s new-found fury, however, is no longer aimed at just the political class, drawn from the landed gentry that perpetuates the continued serfdom of its impoverished landless labour but increasingly, the all-powerful Army. The entity that co-opts a major chunk of the country’s resources, giving itself the lion’s share of lucrative real estate and US funds, positioning itself as the last moderate Islamic bulwark in a region roiled by the rivalry between the Sunni Gulf and Shia Iran, while turning a blind eye to the deep, systemic problems that plague Pakistan.
Many of the young, educated elite—who return with degrees from Stanford and Harvard to a country starved of jobs—believe it is time Pakistan revisited the India success story, by encouraging the growth of micro, small and medium enterprises (MSMEs), grant Most Favoured Nation status to its giant neighbour, open lucrative trade routes across the crossroads of Asia and as one insider said, replicate India’s hugely successful Silicon Valley experiment by gaining the US’ IT industry’s trust to become its back office.
And with that, finally, end the ‘begging bowl’ syndrome that bedevils Pakistan.
Neena Gopal
Foreign policy analyst and author