In the wake of the general elections held on February 8, an Islamabad-based think tank Tabadlab issued a 68-page report on February 18 on Pakistan’s current financial health. The report makes two points plain: first, Pakistan’s debt is unsustainable; and second, the debt is pushing Pakistan into inevitable default.
On the one hand, the youth-led change has hit Pakistan hard in the elections, whereas on the other hand, the fear of sovereign economic default on servicing external loans looms large on Pakistan’s horizon. Never before has Pakistan found itself at this kind of politico-economic crossroads.
The Tabadlab report says, “Pakistan’s external and domestic debt has surged dramatically since 2011, with external debt and liabilities almost doubling to $125 billion and domestic debt increasing six fold. Interest payments now consume a record share of the GDP, underscoring the severity of the debt burden”. This is a fair assessment. The decade of the martial law of General Pervez Musharraf from 1999 to 2008 saw the inflow of dollars in the name of the war on terror. Further, the then economic manager Shaukat Aziz opened Pakistan’s economy to import and laid emphasis on introducing indirect taxes to earn revenue. This was the easiest way to run the country. Subsequent political (elected) governments continued with the same policies.
Now, in 2024, the inflow of dollars from foreign benefactors has subsided, but the country still craves for imported goods of utility and runs the economy on indirect taxes. The economy is import-tilted and consumption-driven, jeopardizing the possibilities for investment in productive sectors. Further, despite the fact that the war on terror is over, the country refuses to reduce its non-development expenditures. The habits the country got inured to are difficult to wean off.
The year of 2024 is special because Pakistan refuses to lay off the civil-military cohabit called the hybrid system introduced in 2018. From arranging sit-ins against an elected government in 2014 to sharing the power corridors in 2018 was the journey the hybrid system had travelled. Interestingly, in 2018, the hybrid system ascended the throne primarily for sharing the fruits of power – to administer the country better. However, in 2024, the hybrid system is poised mainly for sharing the burden of debt so incurred. The civilian half of the hybrid system is supposed to seek loans from the International Monetary Fund (IMF), whereas the military half of the hybrid system is required to secure loans from the Arab countries. Loans are now the lifeline for Pakistan.
The era of martial law is over, because of three reasons. First, dollars in free supply are unavailable to predicate on to run a debt-afflicted country such as Pakistan. After 2018, the turn of economic wizards one after the other to run Pakistan’s economy exemplifies the center stage an economic expert has got – even to the disrespect of the country’s prime minister. Economic challenges are the flip side of Article 6 – both are prohibitory in nature.
Second, economic realization has taken the world hostage. China might be challenging the United States (US) in the sphere of trade, but both try to circumvent a conflict – just to save money to feed their populations, which have grown conscious of the quality of life. The same is the case with the China-India struggle across the Himalayas. No country has extra money to support Pakistan financially in any martial law.
Third, the fulcrum of war has shifted from the region wherein Pakistan lies. Pakistan’s small economy and huge debt makes it unsuitable for being invited as a partner in a coalition. In the same vein, Pakistan has lost the trust of international players. Even in the departure of the US and allied forces from Afghanistan in 2021, Pakistan was not consulted. Pakistan has been left on its own – in the clutches of the FATF in the recent past, and at the mercy of the IMF lately. The state of aloofness is lost on Pakistan.
Whereas the youth bulge has overwhelmed Pakistan, the consciousness of one’s rights has taken over the youth, both literate and illiterate. This is why the Pakistan of 2024 is quite different, at least from that of 2018. Blocking social media platforms such as Twitter is the last bastion for saving Pakistan from the inevitable influence of the youth. On February 8, jumping over all odds and engulfing all hiccups, the youth spoke of their mind.
Under the spell of the hybrid system, the main function of the forthcoming (elected) government would be to devise ways to service the debt. In this context, there would be an improvement. In 2018, the hybrid system used to run the country from behind the veil, whereas in 2024, the hybrid system will run the country from the overt front of the economy. This is how the stakes of the participants are high, as Pakistan remains enmeshed in a vicious cycle of borrowing, spending and liabilities. Interestingly, Pakistan would run under the auspices of the hybrid system, which would in turn run under the tutelage of the IMF. Pakistan’s only hope to utter a sigh of relief is a special economic package from some Arab country.
The Tabadlab report also says, “Debt repayments are at a historic high, de-prioritising the needs of a growing population, such as social protection, education, health, and crucially, climate change.” The assessment is correct. From March to June, when the newly elected government would be making budget for the Financial Year 2024-25, Pakistan would again be at a crossroads: how much to spare for meeting the needs of the growing population and how much to spare for non-development expenditure – after servicing the due debt.
Dr Qaisar Rashid
The writer is a freelance columnist. He can be reached at qaisarrashid@yahoo.com
