Pakistan is in a severe economic crisis with foreign exchange reserves down to nearly $3 billion and inflation at approximately 28 per cent. Reports suggest a high probability of a breakdown of the supply chain, which will potentially worsen inflation in the coming months.
The fuel prices have been hiked by Pakistani Rs (PKR) 35 a litre and the PKR has declined to a historic low, about 20 per cent, against the US dollar. Pakistan is hopeful of getting the approval of the ninth review of the International Monetary Fund (IMF) programme. The assistance from the international donor carries tough conditionalities that will directly or indirectly affect inflation and the cost of living. This, in turn, would further add to the anger and frustration among the people against the Shehbaz Sharif government, which is already bearing the brunt of its economic decisions.
The economic desperation, suggestive of an economic default in the coming months, is coupled with continuing political volatility. Former Prime Minister Imran Khan has dissolved the provincial assemblies in Punjab and Khyber Pakhtunkhwa in his bid to press for an early election. From the time Imran was disqualified from the government in April last year in a vote of no-confidence, he has been staging protests and leading a series of rallies to gather support against the current government on the narrative of corruption and incompetence, adding to the existing challenges of governance.
The deadly terror attack in Peshawar on January 30, which killed more than 100 people, and the attack on February 5 in Quetta indicate that Pakistan’s security challenges have intensified. Post US troops’ withdrawal from Afghanistan in August 2022, the Tehreek-e-Taliban-e-Pakistan (TTP) has emboldened its posture and a series of terror attacks specifically targeting the police personnel have taken place.
Last year, the regime’s efforts to negotiate with and pacify the TTP failed. The group has been holding its head high with unrelenting and implicit tactical support from its ideological allies on Pakistan’s western border, the Afghan Taliban. Lately, the TTP has been projecting itself as a nationalist movement and it announced a parallel government. In fact, a closer look at the TTP’s expansion indicates that it is following the expansion pattern of the Afghan Taliban. The Taliban’s support for the TTP has been a significant point of contention between the Pakistani leadership and the Taliban.
This is indeed one of the most challenging times for a country when it is compelled to deal with multiple crises. The economic, political and security challenges invariably share a linkage, and one intensifies the other. This is not the first time that Pakistan is facing an economic crisis. The nation has been in a gradually intensifying debt spiral on account of financial mismanagement, structural economic flaws and, more importantly, the national priorities it defined for itself and the path it chose to fulfil these priorities. With all the existing problems, the reality is also that Pakistan has a large military well equipped with modern weaponry, which it received from the West and continues to import from its all-weather ally China. Pakistan also has a rapidly growing nuclear arsenal with reportedly 165 warheads and is immensely proud of achieving full-spectrum deterrence.
The nuclear weapons for Pakistan are aimed at war prevention and denying India space for a conventional war. It has conducted a proxy war through terrorism in India (in Kashmir and other parts) for more than three decades under the nuclear overhang. Pakistan’s geographical location facilitated strategic dividends for the state from major powers, including the US and China. The nuclear weapons that it developed during the 1980s while fighting the Russians as a frontline state of the US and the terrorism infrastructure it has nurtured for decades to ‘bleed India’ and ‘seek strategic depth’ in the neighbouring Afghanistan have made Pakistan a state that is arguably ‘too dangerous to fail.’
In the past, Pakistan’s debt burdens have been occasionally eased by its friends and allies who believed stability in Pakistan was in their strategic interest. However, this phase of the economic crisis in Pakistan is experiencing a different positioning from Pakistan’s traditional donors, where the commitments have been limited.
The IMF has been tough with the conditions and scrutiny. China has promised some money, while Saudi Arabia and the UAE have committed to some relief. However, no substantive commitments have been made that could potentially allow Pakistan to evade the economic default. Over the years, Pakistan’s so-called friends have witnessed the nation’s incapability to overcome financial distress even with constant external assistance. Pakistan’s relevance at the global level also seems to have declined.
The US has been focused more on its Indo-Pacific strategy aimed at countering China. The fallouts of the Russia-Ukraine war have engaged the attention of the Muslim world. India’s economic growth and expanding diplomatic profile have attracted suitable attention and curiosity at the global level. Now, what remains to be seen is what Pakistan will do to regain its relevance. Will it revert to its old tactics of mis-adventurism, or will the realisation of rethinking its national priorities finally sink in?
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