by Antonio Graceffo
The Chinese Communist Party (CCP) is biding its time as Pakistan, already facing economic collapse, is now in the throes of widespread protests and political violence.
Pakistan is reeling from a combination of natural disasters, hunger, economic crisis, and political turmoil in the wake of the military-led arrest of former Prime Minister Imran Khan. Terrorism has skyrocketed in Pakistan over the past year, with terrorism-related deaths up 120 percent year on year. Severe flooding affected 33 million people and did $40 billion in damage, worsening the country’s already poor economic situation. Exports have been trending downward since last summer, as have remittances from Pakistanis abroad, creating a shortage of foreign currency inflows. The Pakistani rupee, which stood at about 154 to the dollar a year ago, has fallen to 300 to the dollar.
The unemployment rate is expected to remain at 7 percent this year, while inflation is expected to reach a record high of 27.1 percent. Pakistan’s consumer price index rose to 31.5 percent in February and 35 percent in March. Food prices are up 50 percent, and hunger is growing worse. Pakistan ranks 92 out of 116 countries on the Global Hunger Index, and the country’s hunger level is classified as “serious.” About half the population suffers from at least mild malnutrition and food insecurity. The floods have exacerbated the situation, as have the import controls imposed by the government to prevent the outflow of hard currency. Some 5.1 million people are close to famine-level hunger, and this number has increased by 1.1. million over the past month.
Its currency’s decline makes it harder for Pakistan to purchase the dollars it needs to pay for imports or interest on foreign debt. Foreign currency reserves held at Pakistan’s central bank fell to $4.38 billion—barely enough to cover one month’s worth of imports. Islamabad has imposed import restrictions to prevent more dollars from flowing out of the country. And this has added to the food crisis, as imported food is now more expensive or unavailable in Pakistani shops. If Islamabad does not find a way to increase its dollar holdings, the country may default on its foreign debt.
To avert a balance of payments (BOP) crisis, the government has been pinning its hopes on the IMF Extended Fund Facility (EFF), which assists countries experiencing serious payment imbalances due to a weak BOP position. At the last review, in August 2022, Pakistan was permitted to draw SDR 894 million, worth about $1.1 billion. Pakistan is now desperate for the next installment of a $6.5 billion bailout package approved by the IMF in 2019. However, the EFF program has been suspended for the last several months because the IMF is waiting for Pakistan to meet certain conditions to receive the next round of assistance. Islamabad claims it has done so, but the IMF has rejected these claims so far.
Amid economic catastrophe, the country became even more unstable on May 9, when former Prime Minister Imran Khan was arrested, sparking protests that quickly escalated into violent riots. According to police, he was taken into custody on allegations of corruption. His supporters, however, believe the arrest was politically motivated. Members of Khan’s Pakistan Tehreek-e-Insaf (PTI) took to the streets, demanding his release, shouting, “Khan is out red line.” Khan alleged he was beaten and pepper-sprayed during the arrest, and PTI supporters claimed that the rangers sent to arrest him had occupied the High Court complex and were torturing Khan’s lawyers. Party officials called for widespread demonstrations to protest what they deemed an “abduction.”
Khan has been accused of corruption numerous times since he lost a vote of no-confidence about a year ago. This recent arrest comes after a heated falling out between himself and the military. Khan also alleges that Major General Faisal Naseer, currently serving in Pakistan’s top spy agency, the Inter-Services Intelligence (ISI), tried to assassinate him last year. Khan also accuses the general of turning state power against the PTI. In a press briefing, he said: “It was the army which abducted me. And nothing happens without the permission of the army chief. So, clearly, he had ordered the abduction.” The military has denied all allegations.
Khan’s supporters attacked military and police officers, burning and looting police stations, vehicles, and government buildings. In an attempt to quell the rioting, the government blocked mobile internet service and social media to suppress posts against the government and the coordination of protesters. Authorities have also announced that those arrested during the riots would be tried in a military court. On May 15, Islamabad’s High Court said the arrest was unlawful and granted Khan bail. Just two days later, however, the military and police surrounded Khan’s home, fueling a new round of protests.
The violence and political turmoil distract from an impending economic catastrophe. Moody estimated that Pakistan’s external financing needs are between $35 billion and $36 billion for the upcoming fiscal year, which begins in July. If Pakistan does not find this money, it will be at risk of default. Over the next three years, Pakistan needs to repay $77.5 billion in external debt. To remain out of default, roughly 50 percent of government revenue would have to be applied to loan payments for the next several years.
Pakistan’s failure to meet IMF conditions means an IMF bailout is unlikely. The current political unrest may also dissuade other international sources from lending to Pakistan. This may leave China as Pakistan’s only hope of securing additional loans. At a meeting last month with his Pakistani counterpart, Shehbaz Sharif, Chinese Premier Li Qiang gave assurances that China would support Pakistan’s economic stability.
Pakistan already owes China $27 billion. Further borrowing from China will just drive Islamabad deeper into Beijing’s orbit. While the international order realigns itself into pro-U.S./Western and pro-China/Russian camps, the CCP will happily bring another nuclear-armed power into their fold.
This article originally appeared in The Epoch Times on 5/22/2023
