An unfortunate consequence of Pakistan’s nagging involvement in Kashmir is lack of interest in India about anything in Pakistan except cricket and CPEC- China Pakistan Economic Corridor as a part of it is in POK- Pak occupied Kashmir which perhaps explain why the current economic crisis of Pakistan has not invoked any interest or concern in India. Sri Lankan debt crisis on the contrary has received a huge media attention and India’s $ 2.5 billion assistance to Sri Lanka in various forms well received in the country. This is partly because of regular contact with Sri Lanka on people to people basis which is lacking in our relations with Pakistan. Even then indifference to the crisis of Pakistani economy does not make practical sense in this interconnected global economy as the other consequences of a collapsing Pak economy such as illegal migration or violence against religious minorities in Pakistan and its fall out in India could be destabilizing.
Now let’s see the facts : June 3 edition of the Dawn – Pakistan’s leading English language daily carried the shattering news of New York based global rating agency Moody’s downgrading the Pakistani economy’s outlook to negative – gloomy in common parlance as it found no sign of any improvement in any of the basic macro economic parameters of stability and growth in Pakistan as summarised below:
First, unchecked inflation which is estimated to reach 18% to 20% in the current year is destabilizing for an economy dependent critically on import of oil and gas, and practically all value added manufactured products and pharmaceuticals. Second structural imbalance in trade, as in 2021, value of Pakistan’s exports of US $ 25.3 billions and mostly comprising of cotton, rice, copper and other low value added products ;while its imports were of the magnitude of US$ 73.1 billions – almost entirely of oil,gas, electrical machinery, computers and high value added products which caused sharp depreciation of the Pak Rupee which is ruling now close to Rs 200 to one US Dollar as compared to exchange rate of INR at Rs77 to 1Us dollar now.
Despite the high remittances Pakistan receive from her expatriates the current account deficit – CAD touched an alarming level of US $ 13.86 billions this year in the absence of an equivalent inflow in financial account causing a ” large draw down” on Pakistan’s foreign exchange reserves which according to the IMF declined to a low of US$ 9.7 billions on 30 April,2022. And this can cover only two months of imports though Pakistan had US$ 18.96 billions as forex reserves about a year ago- on 31st July,2021. To this must be added the economic misadventure of the century that Pakistan had undergone- the CPEC- China Pakistan Economic Corridor which is certain to land her to a Chinese ” debt trap”and its coal based power projects are certain to be hit by norms accepted by the global community to phase out use of coal at the recent Glasgow 26 Summit on climate change. There is thus a big question mark about the prospects of the CPEC. At any case it is not going to be a game changer for the Pak economy because of the resistance to the CPEC from the Baluchi people who see no tangible and lasting benefits for them from this long drawn out project.
And in this process the common Pakistanis are made to bear the burden of the “state failure” to manage the economy in the form of inflation – fuelled largely by the huge increase in prices of petroleum products. The Dawn reports that the price of petrol and diesel has been raised by Rs 30 per litre on Jun 3 and costs now Rs.209.86p and Rs 204.15p for a litre respectively – up from May 27 price level of this year; and Kerosene costs now Rs 181.94p/ litre . This only adds to the cost of transport of goods and services and thus inflationary spiral which imposes a crushing burden on the poor and the middle class caused by the high prices of essential commodities.
In this grim situation much will depend how promptly Pakistan could implement the ” conditionalities” such as withdrawal or drastic curtailment of all kinds of” subsidies” such as power subsidy likely to be imposed by the IMF before it releases the loan in hard currencies to enable Pakistan to improve its fragile external payments position. This will hit Pakistani people hard as it will in the short run raise the prices. The ongoing Seventh review under the IMF program is therefore critical for Pakistan as delay in finalising the deal with the IMF heightened not only “external liability vulnerability and external financing” but also inflationary spiral compounded by the fact that Pakistan’s financial institutions – especially its regulatory system are weak. And on top of all these attacks on Chinese staff working on the CPEC projects by the Baloch separatists raised doubts about its very relevance to the economy at this stage.
The only way out for Pakistan is to appreciate the hard “geo economic” reality that her economic future rests on the restoration of trade and enhanced economic interaction with India- a fact that Bangladesh has appreciated under the dynamic leadership of Sheikh Hasina. The results are here to see: GDP of Bangladesh is now US$ 400 billions as compared to Pakistan’s US$ 263.69 billion; and as Pakistan’s population is about 23 crores now and rising unabated as compared to 16.5 crores of Bangladesh which has succeeded in population stabilisation, her per capita income is now about US $ 1466 only as compared to Bangladesh’s per capita income of US$ 2362 measured in” nominal USD”.
Thus Pakistan is facing a grim economic outlook and unless its political class sees reason and give up the Kashmir agenda, seeks economic cooperation with India, it is certain to be on the ” fast track to a failed state – a dubious distinction that Myanmar’s military junta had earned globally. Pakistan has little time to lose.