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Monday, January 30, 2023

Pakistan staring at loan default, economic collapse

World NewsPakistan staring at loan default, economic collapse

Pakistan’s media reported that Foreign Minister Subramaniam Jaishankar’s invitation to his counterpart Bilawal Zardari for the Shanghai Cooperation Organization (SCO) Foreign Ministers’ Meeting in May was followed by Prime Minister Shehbaz Sharif’s talks with India. After the offer has been taken as a sign of a thaw with India, here are the facts on the ground. On the contrary

PM Sharif made a conditional offer in an interview to a UAE channel on 17 January 2023, Jaishankar’s invitation was sent through diplomatic channels on 24 December 2022. As the SCO President in 2023, India has an obligation to invite all SCO members during the SCO Summit later that year.

Although advocates of the India-Pakistan dialogue and dispute resolution industry in India have painted a similar picture of their Pakistani counterpart, India’s bilateral stance with Pakistan has not changed. The message is simple: End cross-border terrorism to normalize dialogue and relations.

Given the state of Pakistan’s economy and political flux in the ultra-radical Islamic republic, Islamabad’s top priority is debt relief for the troubled nation. Faced with strict IMF conditions for Pakistan’s loans, Islamabad has now approached Washington for a soft approach to the Islamic Republic from the Bretton Woods institution as it seeks power from PM Sharif. More taxes are needed to increase rates and raise revenues. Such drastic measures would be politically disastrous for the current PDM government and would give a handle to its adversary and irritating Imran Khan Niazi.

Not only has Pakistan run out of money, it has also run out of ideas to save the state, which is beginning to unravel at an alarming rate. If only the economy was on the verge of bankruptcy, things would not be so bad. But not only is the economy melting down, politics is also completely polarized and dividing the country, social cohesion and harmony are breaking down, and the security situation is spiraling out of control due to Taliban aggression. Is.

The monetary crisis that Pakistan is facing is getting worse day by day as each component crisis is reinforcing the other and there is no clear off-ramp for the current government. Simply put, Pakistan is drowning but Pakistanis think they will swim out of these troubled waters because the world cannot afford to see them drown. But the world does not seem ready to bail out Pakistan until Pakistan is ready to help itself. However, Pakistanis are more preoccupied with the political circus of their country, than with economic reforms that can dig them out of the hole they have fallen into.

The excesses of the Pakistani elite—politicians, military personnel, civil servants, landlords and business and trade organizations—who have captured the state and its resources have reached the point where the economy has hit rock bottom. At this point the focus is on trying to prevent a default that would ignite the economy and lead to an uncontrollable civil and political mess. While there is no doubt that a default would cause unbearable pain, the incorrigible Pakistani elite is trying to intimidate the rest of the world to ensure that Pakistan’s economy stays afloat. Just as they tried to use the flood as a bargaining chip to get international creditors to face some slack, they are now using the coming economic pressure as a bargaining chip. have been.

Basically, Pakistan is terrorizing the world by threatening to unleash nuclear weapons, and radical Islamists are running wild and leading the country into a revolution. As scary as it is, these fears peddled by Pakistan are as exaggerated as ever. Pakistanis may romanticize a revolution, they have no stomach for anything, least of all an Islamic revolution that would most likely undermine elite privilege.

However, the economy is now on the brink of collapse. If the IMF program gets back on track, it will put the economy back on track for a couple of months, possibly until the end of the current fiscal year in June 2023. Pakistan needs about $10 billion in next six odd months. With the IMF program, they will only manage to raise the money, with the Saudis contributing about $2 billion, the UAE another $1 billion, China contributing a few billion, and Qatar contributing about $2 billion. Will buy some assets. But it will only last until June.

Pakistan will need another $30 billion or more in the next fiscal year. Will the same friends continue to pour endless money into Pakistan? Already, the IMF is imposing very strict conditions for the revival of the Extended Financial Facility program. The result of these conditions will not only be politically disastrous but also financially disastrous for the people.

Inflation is expected to reach 40-50 percent as fuel prices rise, electricity rates rise and gas rates rise. Apart from this, the rupee will also fall. According to currency traders, by the time the rupee is allowed to float, it will fall to 260-270 from the artificial level of 230. Some analysts fear that the rupee may breach the 300 mark in a couple of months. This will result in massive inflation which is already back breaking.

Pakistan will have to increase interest rates to control inflation. This will increase the cost of doing business to unsustainable and unviable levels. But even worse, a rise in interest rates will destroy whatever is left of the government’s fiscal position. There is a real risk that even at the current interest rate of 17 percent, the cost of servicing the debt will exceed the federal government’s entire revenue.

The grim reality on Pakistan’s face is that default is inevitable. It is not a question of when it will happen. The only viable option is to seek debt rescheduling. But it’s almost as bad as default because it comes with tough riders that would make current IMF conditions look lenient. However, Pakistani politicians and military leaders hope that this storm will pass them by.

Clearly, Pakistani elites and generals want the rest of the country to be willing to make sacrifices, but not to reduce their spending or concessions. They want their royal protocol, their golf courses, vacations in Dubai, send their children to Western universities, receive irresponsible subsidies from empty state coffers, but the ordinary citizens of Pakistan are not allowed to live. They are also deprived of basic rights.

Pakistan Army is also not ready to reduce its expenses. He is buying expensive weapons systems that Pakistan can no longer afford. Worse still, it continues its strategic adventures on both sides of the border, which have proved untenable. The only way to reduce the military budget is to improve the strategic environment and normalize relations with India and Afghanistan without legacy situations and operations against terrorist groups based in Pakistan.

Rawalpindi GHQ, however, is not happening as the military has no desire to change its strategic orientation towards India and Afghanistan. In the past, tactical adjustments made room. Not anymore. New Delhi has become wiser to Pakistan’s moves and does not feel the need to respond with strategies that only benefit Pakistan. The Taliban, however, are now showing their true colors and seem to be radicalizing the entire region along with continuing to disturb and destabilize Pakistan’s western borders.

Like the military, the political class is more interested in saving its political capital and securing its political future than saving the country or its future. At a time when the country is on the brink of collapse, the political upheaval is strange. Imran Khan wants quick elections in which he believes he will make a clean sweep. The ruling coalition wants to postpone the elections as long as possible because it has nothing to stir up. Army does not want to disturb democracy but wants to shoot. It does not want to see Imran Khan back in power, at least not immediately, and is prepared to stop him by hook or by crook.

For now, it looks like the government will sign on the dotted line and return to the IMF program. But within a month or two, it will start throwing money at its own political support. This means that when the elections are held and a new government comes to power, Pakistan will be in an even worse crisis than the one in which it finds itself. In other words, no matter how you cut it, Pakistan’s economy and with it the current state and political structure are headed for disaster.


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