Islamabad, Pakistan: Pakistan economy is going down in steep slope and it is importing oil and gas and other essentials extensively.
Obviously, this was not sustainable. Pakistan used its strategic geography to sell terror in the name of Islam to earn money. Rich and powerful nations used the Pakistani army for rent. The army in turn trained non-state actors to fight proxy wars in Afghanistan, India, Bangladesh (formerly East Pakistan) and beyond. It was (and still is) a terror State, a rogue nation.
As long as the scheme worked, the Pakistani establishment didn’t have to bother with money. The economy was bailed out a record 22 times in 75 years. That works out to be once every three and half years. Most of the money was pocketed by the rich and influential who lived princely life with assets parked in foreign countries.
The rest of the population didn’t have enough food, electricity, education etc. Basic necessities were shortchanged for radical Islam – the biggest weapon of Pakistan – a narcotic that will keep the tap of terrorism open and bring dividends to the civil and army establishment.
They were so greedy that they even cheated on their protectors. Since 2002, the US has paid the operating costs of the Pakistani Army to fight Al-Qaeda in Afghanistan. By 2008, it was unearthed (The Guardian, Feb 27, 2008) that 70% of the USD 5.4 billion spent was pocketed.
No economy can survive in this fashion and the Pakistani economy is crumbling as soon as the money tap is closed. Islamabad went to Beijing as the new protector. But that too is not working. China built power plants on Pakistani land but refused to give them cheap electricity.
In fact, the economy has reached such a pass that no country will risk saving it alone. For a USD 260 billion economy in 2020, Pakistan has piled up over USD 108 billion in external debt alone. Roughly USD 9 billion is payable to the IMF. There is USD 7 billion in short-term debt, which they have to repay in the next three years.
According to a 2022 report by the World Bank, the external debt to export ratio, which defines the repayment ability, has reached 390% indicating near bankruptcy. As of March 2022, the current account deficit was USD 4 billion. Remittance earnings was down from USD 7.6 billion to USD 7.1 billion.
Things have deteriorated since. Inflation has hit 13.8%. The Pakistani rupee depreciated against the dollar from 186 to 202 in the last one month. Inflow to Roshan Digital Account, launched by the Imran Khan government to attract deposits from the non-resident Pakistanis, is declining. Forex reserves dipped below USD 10 billion covering imports of less than two months.
Last year, index provider MSCI Inc downgraded Pakistan to a frontier market, four years after its ranking was raised to an emerging market. This month, Rating agency Moody’s downgraded the economy’s outlook from ‘stable’ to ‘negative’, citing ‘heightened external vulnerability and uncertainty around securing external financing to meet the country’s needs.
Clearly, Pakistan’s repayment ability is reducing. The country is running from China to the IMF for fresh loans, relaxation in repayment terms etc.
According to a report in Pakistan’s The Express Tribune, the country’s finance minister, Miftah Ismail recently said: “Pakistan is to repay USD 21 billion in foreign debt in the next fiscal year, so it is a must to enter the International Monetary Fund (IMF) loan programme (worth USD 6 billion) to arrange the required financing.”
Under pressure from the IMF, Pakistan recently increased auto fuel prices by nearly 40% in two weeks between May and June. The electricity tariff is increased by 46% to Pakistani rupee 24.82/unit (Indian rupee 9.5/unit).
The purpose of the electricity tariff hike was to ensure the tax earnings and narrow down the unviable subsidy gap. On the flip side, it made electricity way costlier than in India, which will further impact human development.
But that was inevitable in a country that generates 50% power by burning costly furnace oil, gas and even imported gas. In comparison, close to 80% of electricity generation in India and China is coal-based. That makes electricity cheap, ensures tax revenue to the government and keeps import needs in check.
Pakistani leaders never had time to think about such structural maladies. They were driven by a single-point political agenda to destroy, deride and divide its parent and bigger neighbour India. Pakistan was born out of India in 1947. Since then, India has been the central theme of Pakistani politics.
Business never interested them. In 1994, India proposed a barter trade of electricity with Pakistan where India would supply the electricity in unnerved areas in Pakistan and vice-versa. Pakistan denied it. The same proposal took shape in an electricity trade with Bangladesh a decade later.
Bangladesh inherited its economy from Pakistan. Similar to its parent, they too generate 85% of electricity using gas (64%) and imported furnace oil (21%). Domestic coal-based generation is only 2% of the energy mix. However, the import of cheap coal power from India, beginning 2013, now contributes 5% of the energy mix.
Bangladesh is not alone. The Indian electricity grid connects Bangladesh, Nepal, Bhutan and Myanmar. India imports hydroelectricity from Bhutan and Nepal. Kathmandu meets the peak deficit through imports from India. Delhi now has allowed Bangladesh and Nepal to participate in the electricity exchange trade.
India has the world’s fourth-largest refining capacity, far above the local demand. An oil pipeline is already operating between India and Nepal. The India-Bangladesh oil pipeline will start operating this year.
Both the electricity and oil trade was part of the SAARC (South Asian Association for Regional Cooperation) agenda. They couldn’t be materialized due to Pakistan’s resistance. Islamabad practically killed SAARC by vetoing every proposal to improve trade and commerce in the region.
Pakistan was so hell-bent to deny India an opportunity to trade with Afghanistan that they blocked a key connectivity proposal in 2014. This led India and Bangladesh to form a regional subgroup with Bhutan and Nepal. Now no one cares about SAARC or Pakistan.
Over the last 10 years, India’s trade with Nepal and Bangladesh increased manifold. Bangladesh in particular is now a top trading partner of India. But India-Pakistan trade never exceeded USD 3 billion. Indian machines and products reach Pakistan via the Middle East at extra cost. The unofficial trade is estimated to be two to three times the official trade.
Official trade has dipped to rock bottom after Pakistan sent non-state actors to kill Indian security men at Pulwama in Kashmir and, Indian retaliation by air raid to the terror hideout at Balakot, in 2019. Pakistan was swift to close its gates. Now, its own businessmen are asking Islamabad to resume trade at the earliest and for a reason.
Pakistan imports wheat, pulses, sugar etc. The global crisis, particularly after the Ukraine conflict, has set the food prices to the roof. More than prices, availability is a bigger concern. In the prevailing scenario, India holds the key to feeding the world.