In a desperate attempt to pacify a growingly agitated populace hammered by the daily increase in prices of essential daily commodities and food products, Pakistan Prime Minister Imran Khan tells his people that the current account deficit of Pakistan has decreased claiming that it is a positive sign for the economy. However, media reports tell that the current surplus is due to an increase in remittances. The Express Tribune reports that during July and August, workers’ remittances grew over 30% to $4.86 billion compared to $3.71 billion in the same period of last year, according to the central bank. This means that the economy is not growing in real terms. A close study of the import and export situation would help us to understand where the Pakistan economy stands today.
The total exports of Pakistan in the fiscal year 2020, so far, are recorded as $22.505 billion. This includes exports of textiles: $12,783 million, food: $4,534 million, chemical and pharmaceutical products: $1,056 million, leather manufacturers: $479 million, sports goods: $458 million and petroleum: $369 million.
Meanwhile, Pakistan’s total imports for the same period were recorded to be an estimated US$37.3 billion from around the globe in 2019, down by 14% since 2015 and down by 37.3% from 2018 to 2019. These include machinery including computers: US$5 billion (13.3% of total imports), electrical machinery, equipment: $4.6 billion (12%), iron, steel: $2.3 billion (6.1%), mineral fuels including oil: $2.2 billion (5.9%), organic chemicals: $2 billion (5.2%), plastics, plastic articles: $1.8 billion (4.7%) and cotton: $1.7 billion (4.4%).
The total debt of Pakistan stands at Rs 2300 billion with Rs 40-45 billion adding to its circular debt every month. This is alarming and if this trend continues, then within the next six months Pakistan will face an economic meltdown from which neither IMF nor its chief patron China would be able to rescue her.
The Express Tribune reports that the Pakistan economy is estimated to record a current account deficit of $3-4 billion or around 2% of GDP in fiscal year 21. Considering the fact that Pakistan economy is already in the negative (0.4%) even with this, Pakistan’s actual growth rate would be less than 1.5%. Hence, it will not be possible to pay for the instalments of the loans or even pay the government employees their salaries. Under such conditions, Pakistan will revert to massive privatisation of state enterprises such as Pakistan International Airlines, Pakistan Railways and its struggling banks. This will bring in much-needed cash but not enough to avert the catastrophe Pakistan faces. Social unrest and political instability are already turning sour and over time it could ferment a violent uprising by the population.
Corruption unleashed by the military generals and Imran Khan’s friends, like the Sugar and flour mafia who made millions by hoarding stocks, remains unchecked and no one has yet been brought to justice. This means that the leakage caused by corruption and nepotism will hasten the fall of the economy.
This is not an ideal situation since Pakistan is the hub of global jihadist terrorism and any level of political anarchy can very quickly turn into infighting between various jihadist groups for control of the helm of affairs, which in turn could lead to the scenario in which the threat of the nuclear weapon falling into the hands of terrorists could become a real possibility.
Under the above circumstances, the Pakistan army could split into various armed bands supporting competing jihadist groups. Armed gangs of men with long beards will become proxies anew in the internal struggle for gaining power in the state of Pakistan. A 1990s scenario similar to Afghanistan could emerge. Under such circumstances, with Baluchistan struggling for its independence and Sindh already mustering up its rebellion against the state, it will be very difficult for Pakistan to remain intact.
The question is whether China will come to the rescue of cash-starved and politically destabilised Pakistan? In 2008, when Pakistan faced a financial crisis, China encouraged it towards an IMF programme rather than bailing it out. Why should China act differently this time? One might ponder that CPEC would force China to consider helping out Pakistan no matter come what may. However, the sole purpose of CPEC or the Belt and Road Initiative is for China to increase its presence in the Indian ocean and use the Baluchistan port of Gwadar, running of which has been taken over by Chinese companies since 2013, as a location for oil transhipment as well as a military base to “improve its defences in deep-sea waters”.
The $400 billion Sino-Iran economic and security deal signed in July 2020 must be seen as China’s CPEC backup plan. Considering the precarious economic and political situation in Pakistan, China is now entering into economic agreements with neighbouring countries such as Iran, Afghanistan and even as far as Bangladesh. In 2001, Chinese premier Zhu Rongji and Pakistani military ruler General Pervez Musharraf had a conversation that resonates even today.
The Chinese primer told Musharraf: “Investors are like pigeons, when government frightens them with poor decisions they all fly off together”. Hence, Chinese investors, or for that matter any foreign investor, will not wait until the economic ship being steered by Imran Khan would drown. Chinese are flapping their wings already and the Sino-Iran economic deal should be seen in this light. In case a scenario develops in which Pakistan’s nuclear weapons are feared to fall into the hands of a rouge jihadist band of thugs who take over the country, China has already agreed to a joint contingency plan with the US. In an article published in The Atlantic, “The ally from hell”, Jeffery Gold Berg and Marc Ambinder revealed that China had had secret talks with the US and reached an understanding that should America decide to send forces into Pakistan to secure its nuclear weapons, China would raise no objections. This means that since 2011, China and the US have been on one page regarding dealing with a Pakistan that descent into chaos. America’s ability to attack deep inside Pakistan territory was demonstrated beyond doubt when on May 2, 2011, US Navy SEALS raided undetected and killed Osama Bin Laden just few hundred yards away from the Pakistan Military Training Academy.
When it comes to economic interests the Chinese are even ready to talk to the devil itself. China has been protecting terrorist groups such as ISI backed Lashkar-e-Taiba based in Pakistan from UN Security Council sanctions. Lashkar was responsible for the Mumbai 2008 attacks. China even has established direct contact and clandestine diplomatic relations with Hizb-e-Islami of Afghanistan, which is the sister organisation of Jamiat-e-Islami Pakistan. Similarly, on September 3, 2007, BBC News reported that China was supplying arms to the Taliban.
The reason behind China’s clandestine relations with jihadist terrorists is two folds. Firstly, they want guarantees that their projects in Afghanistan will not be terrorist targets, and, secondly, that the jihadists will not take up the issue of Uighur Muslims and support them. In 2000, Chinese ambassador to Pakistan, Lu Shulin himself visited Afghanistan to discuss the matter of Uighur support with none other than the Emir of the Emirate of Afghanistan Mullah Omar. Andrew Small in his book, The China-Pakistan Axis (London. 2020) notes that Mullah Omar assured the Chinese ambassador that “Afghanistan never had any interests or wish to interfere in China’s domestic affairs, nor would Afghanistan allow any group to use its territory to conduct any such operations or support one to that end.”
China has demonstrated time and again that if need be, she will bypass Pakistan to secure its geo-economic and political interests. Therefore, to expect China to come to the aid of Pakistan in the wake of a total economic and political meltdown would be naive. Consequently, Imran Khan can at best be described as the captain of a sinking ship. It is only a matter of time before Pakistan disintegrates under the pressure of insurmountable debt and political chaos she has driven herself into or so it seems.