Month: January 2024

The central bank’s precarious situation, characterised by a record-high interest rate of 22%, demands careful consideration. With interest payments constituting over 90% of government spending, the challenges are manifold .. writes Dr Sakariya Kareem

Pakistan stands at a critical juncture, facing a profound economic crisis marked by escalating debt levels and the pervasive spectre of corruption. This comprehensive analysis delves into the intricate web of challenges that jeopardise the nation’s financial stability, shedding light on the mounting debt burden and the corrosive impact of widespread corruption.

The economic landscape of Pakistan is shrouded in crisis, with the projected debt load reaching an alarming 86.2% of GDP by June 2023. This trajectory poses a severe threat to the country’s economic stability, manifesting in the energy sector’s circular debt that has surged to Rs5.73 trillion. This staggering figure not only points to the shortcomings in policymaking and management but also serves as a stark reminder of the hurdles impeding significant economic progress. Concurrently, efforts to stabilise the currency in the face of ongoing forex shortages are hampered by the continuous devaluation of the rupee.

Beyond the sheer magnitude of the debt crisis, the per capita debt in Pakistan underscores a systemic issue. The country’s persistent reliance on loans from the International Monetary Fund (IMF) since 1958 has led to a per capita debt crisis that jeopardises economic stability. This perpetual reliance on external financial support restrains credit availability for industries, thereby hindering development, investment, and job creation. The strain on financial resources from loan interest payments further exacerbates the challenges faced by vital sectors like healthcare and education. To navigate this perilous cycle, sweeping reforms are imperative, with a focus on enhancing revenue collection mechanisms and promoting sustainable economic practices.

In the energy sector, the cyclical debt reaching Rs 5.73 trillion is indicative of the inadequacies in debt management strategies. The perpetuation of inadequate policies and a reliance on loans, particularly from the IMF, contribute to an escalating per capita debt and impede the nation’s economic progress. Allegations of corruption and mismanagement within public sector enterprises, especially in the power sector, add fuel to the fire, exacerbating financial difficulties and obstructing foreign investments crucial for economic growth.

The central bank’s precarious situation, characterised by a record-high interest rate of 22%, demands careful consideration. With interest payments constituting over 90% of government spending, the challenges are manifold. While anticipated interest rate reductions could stimulate investment, they also pose the risk of escalating inflation. The stringent constraints imposed by IMF regulations on lowering the government’s debt-to-income ratio further prolong spending restrictions on vital sectors such as health and education, exacerbating the economic conundrum.

The global COVID-19 epidemic has amplified the preexisting debt crisis, necessitating international intervention. Despite historical foundations such as the Bretton Woods institutions, challenges persist in executing international programs and obtaining bilateral funding. China’s role as a significant creditor assumes paramount importance, and the G20’s Common Framework faces obstacles due to China’s insistence on IMF and World Bank losses.

The China-Pakistan Economic Corridor (CPEC), once considered revolutionary, now confronts the looming threat of debt default of close to 69 billion USD, marking a shift from its initial promise of transformative economic benefits for Pakistan. Challenges such as diminishing foreign exchange reserves and a notable inflation rate underscore unfulfilled expectations. China’s reluctance to provide relief raises questions about the project’s viability, exacerbated by fundamental flaws in prioritising infrastructure development over human capital investment.

China’s recent decision to lend $700 million to Pakistan adds complexity to the growing debt crisis, reflecting China’s concerns about Pakistan’s escalating debt burden. This financial injection aims to supplement the existing $30 billion owed to China and unlock crucial bailout funds from the International Monetary Fund (IMF). However, the IMF’s conditions, which include tax hikes and securing additional external funding, reveal the intricate interplay between international financial institutions and the economic dependencies of countries like Pakistan.

The intricacies of this situation highlight the delicate balance between meeting short-term financial obligations and implementing long-term reforms to ensure economic sustainability. The implications of China’s loans, coupled with conditions imposed by global financial bodies, underscore the multifaceted challenges Pakistan faces in navigating its economic landscape. The evolving dynamics of CPEC and its financial intricacies necessitate a nuanced approach to address not only immediate debt concerns but also to forge a path towards a more sustainable economic future for Pakistan.

Furthermore, Saudi Arabia’s recent decision to refuse financial aid and interest-free loans has left Pakistan in shock, prompting complaints from the finance minister about the lack of support, even from traditionally friendly nations. Pakistan faces a severe economic crisis with dwindling foreign exchange reserves, high inflation, and urgent repayment obligations of nearly $80 billion over the next three and a half years. Negotiations with the IMF for a bailout package have reached a critical stage, and the country’s credit rating has been downgraded to junk, making it challenging to secure international loans. Saudi Arabia is reportedly conditioning future loans on Pakistan, implementing stringent reforms, mirroring IMF requirements. This marks a shift in Saudi Arabia’s approach towards financial assistance and aligns with their emphasis on accountability and reforms at the World Economic Forum.

The Pakistani government’s delay in implementing essential policies and a trust deficit with the IMF contributes to the economic challenges. High inflation, currency devaluation, and import restrictions have added to Pakistan’s woes. The Saudi reluctance to provide emergency funding signifies a move towards an investment model contingent on Pakistan’s commitment to comprehensive economic reforms. The delay in implementing IMF reforms is attributed to deep-set corruption, eroding trust in Pakistani leadership both domestically and abroad. Pakistan’s unfavourable ranking on corruption indices poses a challenge to attracting foreign investment. Saudi interest in investing in Pakistan’s energy and IT sectors hinges on the country’s willingness to undertake economic reforms. This marks a turning point, signalling the end of an era of easy financial assistance for Pakistan.

As Pakistan navigates this precarious economic trajectory, a profound political and economic crisis unfolds. Drawing parallels with recent challenges faced by other nations, internal disputes, regional instability, and global uncertainties threaten the very survival of the country. The emphasis placed by Pakistan’s Army Chief on the military’s significant influence in both politics and the economy underscores the gravity of the situation. Immediate assistance from the IMF is called for in response to the economic upheaval, highlighting the urgency of both domestic reforms and external support to stabilise the country’s economy.

In conclusion, Pakistan’s economic stability is hanging in the balance, imperilled by the mounting debt and corruption that permeates its economic fabric. The country grapples with a myriad of challenges, from spiralling debt and inflationary pressures to widespread corruption and mounting debt loads. Navigating this complex terrain necessitates comprehensive and urgent reforms, addressing underlying issues and clearing the path for a more robust and transparent economic future. Pakistan must re-evaluate its approach to managing foreign dependence, implement sustainable financial practices, and strike a delicate balance between economic opportunities to emerge from the current economic crisis. The nation stands at a crucial juncture in its history, demanding swift action to ensure economic prosperity and pave the way for sustainable growth.

Protesters, many of whom rely on fishing for income, demanded an end to illegal trawling that depletes their catches. They also sought relaxed border trade with Iran, fewer security checkpoints, and improved access to necessities like clean water, healthcare, and electricity … writes Jalis Akhtar Nasiri

A video clip circulating online from Gwadar, Pakistan, depicts a young boy in red throwing a stone at security forces, who retaliated by hurling stones back. Another disturbing video captures security personnel passively watching as someone, said to be a fisherman’s child, is beaten and dragged on the ground. These incidents follow the lifting of an internet blackout in Gwadar, where protests demanding better living conditions and rights for locals had been going on for over 50 days. The Haq Do Tehreek movement, led by Maulana Hidayat ur Rehman, had blocked key access points like the Gwadar East Bay Expressway, highlighting deep discontent with the lack of benefits reaching Gwadar despite its status as a central hub in the China-Pakistan Economic Corridor (CPEC).

Protesters, many of whom rely on fishing for income, demanded an end to illegal trawling that depletes their catches. They also sought relaxed border trade with Iran, fewer security checkpoints, and improved access to necessities like clean water, healthcare, and electricity.

Peaceful protests against the CPEC project in Gwadar spiralled into tragedy on December 27^th, as violence erupted at the protest site, leading to the death of a police officer. This incident ignited a stringent government response, with authorities cracking down on the demonstrations, and arresting a large number of protestors. Internet access was suspended, and strict restrictions were implemented under Section 144, effectively putting the region under lockdown. Over 260,000 residents are confined to their homes while protesting for their rights, which they believe are being undermined by the CPEC’s construction.

They continue to face backlash for expressing their opposition to the CPEC development plan. They feel the plan disregards their local concerns and needs, and that they are being restricted in their homeland. This isn’t the first time the people of Balochistan have voiced their disapproval of the project, which stretches from Gwadar Port to Xinjiang Province in China. They argue that the development policies favour outsiders and fail to address their core issues. Essentially, they feel left out of a project that is happening in their backyard.

Gwadar, a remote and forgotten corner of Pakistan till about a decade ago, gained significance when China decided to develop the Gwadar Port as part of the ambitious CPEC project. While this brought hopes of economic prosperity, the local population’s concerns were sidelined. Their traditional fishing livelihoods were threatened by illegal trawling, and despite assurances, basic issues like lack of jobs, water, and electricity remain unaddressed.

Gwadar, not too long ago just another sleepy fishing town in Pakistan, has undergone rapid development in recent decades. However, this boom has bypassed many locals, leaving them feeling excluded and resentful. Residents complain of constant surveillance, restricted fishing rights, and a lack of basic amenities like healthcare and clean water.

Adding insult to injury, illegal trawling by foreign and domestic vessels depletes fish stocks, further squeezing the livelihoods of local fishermen. Even licensed Chinese trawlers, equipped with superior technology, outcompete their smaller Pakistani counterparts.

This simmering discontent has boiled over in the past two years, erupting into widespread protests. Locals feel unheard and unseen by the government, which touts Gwadar’s development while ignoring the plight of its citizens. They demand a fairer share of the benefits and a say in shaping the future of their city. While hundreds of locals are currently employed in the Gwadar port and free zone projects, concerns linger about their long-term well-being. China Overseas Ports Holding Company (COPHC) Pakistan Chairperson Zhang Baozhong highlighted the immediate employment numbers, but critics warn of potential large-scale disempowerment. They fear that local communities will be marginalized in their land, becoming mere subjects of development rather than active participants.

This concern is amplified by the ongoing Baloch insurgency, which views state-backed projects with suspicion. Past attacks on Chinese personnel and the recent deaths of Baloch children caught in the crossfire raise further security concerns and underscore the need for a more inclusive and sensitive approach to development in the region.

In response to recent attacks on government symbols, security forces, infrastructure projects, and foreign workers in Gwadar, Pakistani authorities have ramped up security measures in the region. This includes plans for a controversial fence separating Gwadar from the rest of Balochistan, initially proposed by former chief minister Jam Kamal Khan. This proposal, seen as both an attempt to isolate the area and an admission of struggles to control the wider situation in Balochistan, further fueled local tensions. Additionally, numerous checkpoints monitoring the movement of Gwadar residents have been established. These measures, implemented under the guise of development projects, have sparked protests from the local population who feel subjected to excessive surveillance and control.

The Balochistan government seems determined to dismiss the Gwadar protests as merely destructive and “anti-development” rather than engaging with the underlying issues. Home Minister Langau’s accusation of property damage further serves this narrative. This approach reflects a broader unwillingness by the Pakistani state to acknowledge its own problematic policies and engage in genuine dialogue with its citizens. By imposing restrictions like Section 144, the government conveniently shifts the blame to the protestors, painting them as the problem instead of addressing the root causes of their discontent.

Gwadar, a city at the heart of the much-touted CPEC project, presents a stark contrast to the Pakistani government’s rosy picture of development. While leaders like Imran Khan and Shehbaz Sharif have hailed CPEC as a “game changer” for the nation, boasting its potential to uplift people from poverty, the reality on the ground narrates a different story. Gwadar residents remain deeply marginalized, excluded from decision-making processes and experiencing little to no improvement in their lives. The grand claims of development ring hollow as locals grapple with issues like water scarcity, lack of basic amenities, and unemployment. Instead of empowering them, the state’s dependence on foreign projects fuels feelings of alienation and disenchantment, leaving the people questioning the true beneficiaries of this so-called development. This crisis in Gwadar exposes the hollowness of grand narratives and underscores the urgent need for inclusive development that prioritizes the well-being of local communities.

The Haq Do Tehreek (HDT), or “Give Rights (to Gwadar)” Movement, emerged under the leadership of Maulana Hidayat-ur-Rehman as a critical response to government development policies. In 2022, the HDT issued a warning to the authorities, stating that the local population’s concerns needed to be addressed, or they would resort to blocking the area. However, the government dismissed these warnings. Instead, in a show of force, they deployed a staggering 5,500 additional police personnel to Gwadar on December 1st, 2022, supposedly to “maintain law and order.” This heavy-handed tactic further strained the relationship between the government and the people of Gwadar, laying the groundwork for future tensions.

Initially peaceful sit-in protests took a tragic turn on December 27th when violence erupted, resulting in the death of a police officer at the protest site. This incident triggered a harsh government crackdown. Numerous protestors were arrested, internet access was shut down, and restrictive measures under Section 144 were imposed. The situation remains tense, with neither side willing to compromise. While the state holds the power to dismiss the demands of the local population, the protestors have everything to lose, including their livelihoods, prospects, and even their sense of belonging to their land. This volatile standoff creates a deeply concerning situation with an uncertain outcome.

In essence, the turmoil in Gwadar reflects deep-rooted discontent amidst economic aspirations. The protests against the CPEC expose a disjunction between national development rhetoric and the harsh realities faced by locals. The government’s response, marked by arrests and restrictions, risks widening the gap between state and citizens. The crisis underscores the imperative for an inclusive development approach that prioritizes local well-being over external interests. Security concerns, highlighted by the Baloch insurgency, warrant a nuanced resolution. Bridging the gap between state and citizen requires acknowledging grievances, fostering genuine dialogue and prioritizing community well-being for sustainable progress in the region.

(Dr. Jalis Akhtar Nasiri is a distinguished scholar and journalist who contributes articles on significant humanitarian issues)