In recent months, nuclear Pakistan has faced numerous challenges that have led to a serious economic crisis. Pakistan will need more than international help to get out of it this time.
In recent years and more specifically since August 2021, Pakistan seems to have run out of luck. A series of internal and external developments brought the nuclear state to a severe economic, political and security crisis perhaps the worst it has experienced. The American withdrawal from Afghanistan started Pakistan’s decline, as it left Pakistan to face almost alone increasing security challenges against terrorist organizations and militant groups seeking to undermine the regime in Islamabad.
To this can be added the political instability in Pakistan that has brought governments with it that make decisions that please the citizens in the short term but harm the country in the medium and long term without any strategy. The floods that hit the country last summer did not ease Pakistan’s economy while destroying approximately two million homes and causing extraordinary economic damage. In addition, the Russia-Ukraine war that broke out a year ago added difficulty to the Pakistani economy and left it almost without solutions.
In January, the consumer price index in Pakistan rose by 27.6%. Inflation in the country is at a 48-year high, foreign exchange reserves dropped by 16.1% and the unemployment rate is soaring. However, the situation in which Pakistan has found itself is not new. In other words, its lack of economic-political strategy has been spread over years.
So why exactly now has Pakistan reached the brink?
This question can be answered from many angles, although the overall answer will be the same: everyone is tired of pulling Pakistan out of the mud. If we look back, we will find that the International Monetary Fund (IMF) has bailed out Pakistan 13 times in the last 35 years.
Saudi Arabia, Pakistan’s strategic partner and big sister, has also invested and donated large sums over the years to stabilize Pakistan’s economy. Qatar, the United Arab Emirates, the United States, Iran, China and other countries also expressed support in moments of crisis. The IMF has expressed a desire for another bailout of Pakistan, although this time, it has set conditions to ensure that the cycle does not repeat itself.
It was also joined by Saudi Arabia, which demanded reforms in the Pakistani economy. Ironically, Pakistani Finance Minister Ishaq Dar refused the IMF’s aid package on January 31 and is trying to reach a compromise on their conditions. The reason is that Shahbaz Sharif’s government knows that elections are expected in the country this October and that the previous prime minister, Imran Khan, who was ousted after losing a no-confidence vote in his leadership, is a significant and threatening political force.
Accepting the conditions of the IMF and Saudi Arabia will force Sharif to make less popular decisions, mainly the lowering of the high subsidies enjoyed by the citizens. The public enjoys fuel, gas and other consumer products at discounted prices but if the IMF’s demands are met, these will stop and the residents, who have already been damaged by the economic crisis, will be damaged once more.
ACCORDING TO recent reports, it seems that Pakistan is close to agreeing to reform its economy and in part to the IMF bailout package, which may give Pakistan some air but not in the long term. A new $700 million (NIS 2.6 billion) loan Pakistan received in late January from China and other funds from other several countries will also make the economic crisis a little easier but only on a case-by-case basis.
If Pakistan does not stabilize its government, concentrate on finding real and deep solutions to its economic situation and reduce the influence of the military on the government in Islamabad, Pakistan’s economy, as well as its political-security situation, will not stabilize. Just to get a sense of proportion, the Pakistani army’s share is about 17.5% of the total general budget, a huge amount by any standard and precious money than could instead help the Pakistani economic crisis.
International and domestic pressure may have started to work, as Pakistan recently decided to increase fuel and other commodity taxes on its citizens, which is expected to bring important funds to the country’s coffers. This move may be deceptive and it is doubtful whether it will start a trend of economic reforms from above or whether it was to please the IMF and other helpers.
If the trend in Pakistan will not change, its debt to China, which is 30% of its total national debt, may increase and thus Pakistan will be submissive to growing Chinese influence in the country and lose layers of its sovereignty, as has already happened in several developing countries in Asia. In addition, the domestic terrorist organizations led by the Pakistani Taliban (TTP), are gaining more and more momentum. They may get a big boost and be perceived by clueless citizens as an alternative to the current failed regime, which will add to the disorder in Pakistan.
The bottom line is that Pakistan is the only one that can help itself beyond the short term and if it doesn’t do it soon, it’s possible that sooner or later the Pakistani pressure cooker will explode. Such a situation will change the entire balance of power in Southeast Asia and will pose a deep problem for the US both in terms of the war for influence with China and in the global war against terrorism.
Beyond that, it must be remembered that Pakistan is a nuclear country. A coup in the country is a distant scenario, although the current situation may lead to unprecedented steps on the part of Saudi Arabia, which helped it with its nuclear project and in Iran, Pakistan’s neighbor and a bitter rival of Saudi Arabia and the moderate Sunni camp.
In short, a complete loss of control in Pakistan is no less than a global danger. It is unlikely to happen soon or at once. However, as long as there are no drastic changes in the Pakistani government and things don’t improve, the chances of such a scenario will only increase.
The writer is a Pakistan-Afghanistan researcher at Bar-Ilan University.