On 2 June 2022, when the world opened newspapers, a headline read, “Pakistan as a country might split.”
It was the former PM of Pakistan himself; who gave this statement. In an interview with BOL news, he said, “Think tanks in India are mulling to separate Balochistan. They have plans; this is why I am putting pressure.”
Why would a former PM of such a large country give this statement? What is happening with Pakistan? Is Pakistan really facing a geopolitical/economic disaster? What role does India play in this game? Let’s see.
Loan Based Economy
On average, Pakistan borrows money every two years from IMF. Time and again, UAE and China also provide loans at high-interest rates. Apart from this, several aids come from countries like US and UK.
Recently IMF reported that Pakistan has to pay around $30 Billion in this fiscal year and $35 Billion in the next fiscal year. So how will Pakistan clear its debt? By taking more loans!
“Don’t take loans to clear the previous loan,” this was the first financial advice my father gave me. How can a nation make such a ridiculous decision?
Well, Pakistan doesn’t have any impactful industry to export. It’s basically an import-based economy like Sri Lanka. The estimated FDI (Foreign Direct Investment) in Pakistan was approximately $2.6 billion this year.
So to clear the loans, the short-term solution is: to take more loans! But then IMF had enough of it, so much so that they made Pakistan dance to their tunes, as quoted by the current interior minister of Pakistan.
As Pakistan has borrowed billions of dollars from IMF, this time, IMF was not sure about giving a loan at a standard interest rate. As the risk increased, so did the interest rates, from 8.5% to 12%. A whopping 50% increase!
IMF didn’t accept Pakistan’s request easily either; these were the major demands of IMF:
- Enabling a proactive monetary policy to slow inflation to 5%-7% over the medium term and greater exchange rate flexibility to rebuild reserves
- Targeting an underlying primary surplus of 0.4% of gross domestic product by restraining spending and boosting revenue
- Resuming reforms including timely adjustment of power tariff
- Reducing poverty levels, strengthening governance and social safety (source)
Apart from IMF, two major players also gave loans to Pakistan, China and UAE. China’s case is hilarious.
China had given Pakistan financial assistance of around $4.5 Billion, which was due to be paid in March 2022. Instead of being a true friend like Bejieng claims and waiving off the loans, China rolled out another $2.5 Billion.
The additional assistance is to boost the Forex reserves of Pakistan, which are at a concerning level. Now you may ask, what would Pakistan do with increased Forex reserve? Well, increased Forex reserve helps you to get more loans, it seems.
Saudi Arabia too gave Pakistan financial assistance of $8 Billion. The previous year it was $3 Billion. There are several other countries too, but I’ll pause here.
So why does Pakistan need so much of a loan now only? As discussed earlier, Pakistan needs $30 billion in this and $35 billion in the next fiscal year to repay debt and fund imports.
Pakistan’s foreign-exchange reserves have shrunk to a level that could only cover less than five weeks of imports (source).
Don’t drink tea; we can’t import
Last month a video went viral where a Pakistani minister said on record, “Cut tea drinking by 1-2 cups.” Why? Well, Pakistan drank tea worth $400 Million in a single year.
For a country that imports almost everything and has a purchasing power of $10 billion only, this is a colossal expense. Tea is not the only thing cut at the moment; a nationwide power outage is also not uncommon.
When Pakistan was performing OK-ish, the power outages were frequent, which now have become longer. Reportedly, residents of major cities have had to go without electricity in their homes for as much as 10 hours a day.
Another thing hitting Pakistan is oil imports. Due to the sanctions on Russia by western countries, the prices of crude oil per barrel are record high.
To buy crude oil/ petrol, a vast chunk of Forex reserve is used. Pakistan can’t afford that, and the common citizens are feeling the impact. The petrol prices have jumped 66% in just two months. In April, a liter of petrol cost 150 PKR, which now costs 250 PKR (source)
Would Pakistan break?
Many geopolitical analysts now believe that as China’s loan is getting out of hand, Pakistan may cede Gilgit Baltistan (Pakistan-occupied Kashmir) to China.
Chairman of Karakoram National Movement in POK, Mumtaz Nagri thinks the same. As the region is one of the highly neglected ones in Pakistan, people fear that their land might become the land for a power struggle in the upcoming future.
China too would be highly interested if it happens as it aligns with its expansionist policies. Also, as the region gives direct access to Afghanistan, China would be thrilled to make an offer. In the past too, China has done similar things to other nations.
But if Pakistan does cede POK to China, it’ll face the wrath of IMF and other monetary institutions in the form of a Blacklist. Also, after the US exit from Afghanistan, the last thing the US would want China taking control of the region and gain road access to Afghanistan.
The whole Gilgit Baltistan region is highly underdeveloped. Electricity is supplied for only two hours a day; there is a food shortage, 9% of suicides in Pakistan happen in this region, they don’t have control of their own natural resources, there are multiple terrorist launchpads in the area, etc. (source)
Whatever the end result will be, the people of POK will suffer. In the end, it is their lives which is at stake. Although Pakistan doesn’t seem to care about it, the world has to.
In my opinion, POK will not cede to China. It’s a too risky trade, and India will go to lengths to prevent it. Unlike what Pakistan’s former PM said, India would try to keep Pakistan united in order to maintain the status quo in the region.
The opinions expressed in this article are of the author. They do not purport to reflect the opinions or views of the India Shorts.