By: Humayun Khan
Since Imran Khan has taken over the presidential chair, Pakistan has been facing with dreadful economic downslides. The election of a cricket team captain as president has appeared to be unhealthy for the economic and political competency of Pakistan.
Over the last one year, Pakistan has been through a drastically consequential crisis in terms of economic stability which compelled the government of Pakistan appeal to Gulf countries (UAE & Saudi Arabia) and Its strategic Ally China for debts in order to put an end to the ongoing crisis.
Prime minister Imran Khan has inherited a balance of payment crisis. By the end of June 2018, Pakistan had a current account deficit of $18 billion, nearly a 45 percent increase from an account deficit of $12.4 billion in 2017. Hefty imports (including those related to the China-Pakistan Economic Corridor (CPEC)) and less-than-projected inflows including export revenues and remittances have led to a current account deficit broadening, with foreign currency reserves levels covering less than two months of imports-pushing towards a difficult economic situation.
2018 has been proved to be a poor year for Pakistan’s emerging markets. Several factors like global monetary tightening, increased oil prices, and reduced investor confidence have negatively impacted the country’s precarious situation. But the country’s deep-seated complications and weak economic policies have further pushed the economy to a range of debt vulnerabilities.
Further, Pakistan’s currency (Rupee) has also been devaluing. recently one Rupee has been valued to 138.45 against one dollar (1$= 138.45 RS). Perhaps Pakistan’s problems are considered to be the chronically poor mobilization of internal resources and extensive tax hedging.
Moreover, Pakistan’s external debts are estimated to climb to $103 billion by June 2019. Chines financial aids and investments in Pakistan are quoted the major drivers for Pakistan debt crisis, this perception is precise to a certain level because China makes Pakistan a key partner in terms of economic and infrastructural projects like CPEC. CPEC program is projected to be a $60 billion infrastructural project which aims at connectivity of China with the Gulf and the middle east. The huge budget is thought to be a heavy debt burden for Pakistan, but the ongoing crisis is indigenous and homegrown.
The above-stated turning points provoked Pakistan to turn its all-weather Ally China for $2.5 billion (nearly 18,000) loan. According to economists, Beijing’s money will help Islamabad boost its official foreign reserves, despite a remarkable amount of aids from Saudi Arabia and the UAE.
Another important issue for Pakistan’s economic decline is the Afghanistan-Pakistan bilateral trade disputes that have been igniting for the last two years, since Afghan government has made several changes in the economic policies with regard to the transit with Pakistan which also covers the tertiary memorandum of understanding (MOU) signed by Afghanistan, India, and Iran in order to embark transit between Afghanistan and India via Chabahar port Iran. This practice was a red signal for Pakistan because earlier Afghanistan-India trade was being carried on via Pakistani routes which were yielding for Pakistan as well because they used to charge high rate tariffs.
Additionally, Both the countries recently started aerial transit but Pakistan due to the external and innermost financial stresses put out the Indo-Afghan trade followed by a shut down since it was passing over Pakistani territory.
Furthermore, the Afghan government signed an agreement with China which is on the export of pine nuts from Afghanistan to China earlier pine nuts were being smuggled to Pakistan and re-exported to China under Pakistani label and trademark, Pakistan used to export 10,000 tons of pine nuts to China every year.
The Afghan-China trade agreement appeared to be yielding enough for Afghanistan’s economy but approved to be otherwise in case of Pakistan, thus Pakistan was completely grabbed both economically and politically.
Besides that, the Afghan government also blocked the Turkham border which is considered to be the vital trade port for both Afghanistan and Pakistan and approximately two thousand Pakistani containers were stuck beyond the border due to the blockade of the border by the Afghan side. Hence, these maneuvers by the Afghan government caused Pakistan a detrimental economical backwash.
Along with that, according to the newly published statistics, last year’s trade value between the two countries dropped by $1 billion to $1.5 billion while in 2015 it was $2.5 billion. The commerce authorities of Pakistan claimed that the closure of the Pak-Afghan border contributed to a steady decline in Pakistan’s exports to Afghanistan. Another reason was the diversion of Afghanistan’s trade routes from Pakistan to Iran.
Such impositions were proved to be very much harmful to Pakistani traders as Afghanistan has always been known to be a profit-making market for Pakistani products.
On the other hand, the International monetary fund (IMF) and the USA also denied aiding Pakistan financially anymore as the external debts of Pakistan were/are going sky-high due to which Pakistan would not be able to recover the loans.
However, Pakistan as always attempted to pressurize the Afghan government through political means in order to reopen the Pak-Afghan border for transit, the prime minister Imran Khan also announced that the border must remain open for 24 hours for their containers to ship to central Asia via Afghanistan.
In the end, as Pakistan is confronting with incessant financial crises and for an excessively long period, the Pakistani government has been entirely dependent on China and U.S bilateral assistance. This may not be the first and final option for Pakistan. Pak government needs to hold subtle political and economic ties with the region, particularly with Afghanistan and India in order to sustain its forex.
In addition to that, in order to come out of the macroeconomic and fiscal impediments, Pakistan must seek ways to effectively mobilize its internal resources and avoid waging the various extremist groups both politically and financially, instead, they must spend the money in overcoming the concurrent financial drawbacks.
Reference:
1: https://www.csis.org/analysis/economic-crisis-pakistan-again-whats- different-time
2:
https://m.economictimes.com/news/international/business/chinas-2-billion-pakistan-loan-shows-desire-to-keep-imran-khan-close/articleshow/65237351.cm
