In 1854, the Ottoman Empire knew the path of debts for the first time at the hands of European creditors in order to finance its war with Russia, and since then it entered into the game of musical debt chairs, new debts to pay off old debts, a game that European countries lured it into despite realizing the inability of Astana to Paying off its debts because of the structure of its economy, which is based primarily on imports, not exports.

This game transferred the sultanate's revenues directly to European banks and not to their coffers, and thus the desire to reform the economy became a distant wish.

In any case, the game ended with the collapse of the Ottoman Empire, but soon the story of economic failure was repeated in many nascent nation-states, especially those that emerged from the mantle of major powers, such as the empires of the Ottomans, British India, Austria and Hungary.

This year, with the echoes of the Russian-Ukrainian war, the consequences of the Covid pandemic, and the policies of the US Federal Reserve, many drowned and debt-dependent countries are facing a darker episode than everything they have seen previously, as the debts of developing countries have more than doubled over the past decade and reached 9 trillion. Dollars, and this year, according to the World Bank, it is expected that 60% of the poorest countries in the world will plunge into a debt crisis, if they are not already mired in it.

Pakistan is one of those countries now facing a debt burden, and economic analysts fear its collapse.

And like many of its counterparts in the developing world, it must beg international donor institutions and friendly countries, and swallow the bitter recipe of the International Monetary Fund to accept the resumption of its financial aid programs in order to avoid default on debt payments, which means a warning to huge numbers of the country's poor of inevitable doom, whether it is swallowed. Islamabad is the bitter medicine or you haven't tasted it.

Pakistan suffers from a chronic debt crisis, but decision-makers have always believed that their country is too big to fail or that the world will allow it to fail, because of its location and the role it plays in South Asia, in addition to being a nuclear-armed country, and the fifth largest country in the world in terms of population.

Pakistan has relied on Gulf support from time to time, but it was surprised after years that some of the most important donors in the Gulf changed their strategy for financial grants, after they decided that it promotes a culture of dependence among countries receiving aid, so it does not bring about a serious change in the structure of its economy.

Although the Kingdom of Saudi Arabia, the country's most prominent financial supporter, is still increasing its investments in Pakistan, its change in its strategy towards financial aid raises the concern of the South Asian country for the future.

Following in the footsteps of Sri Lanka, Pakistan is on the brink of collapse

Protest against high inflation in Pakistan.

(Anatolia)

Since 2022, threads of catastrophe have begun to weave around the Pakistani state from all sides, from political tension to external conditions to violent armed operations, to climatic disasters, threads that have exacerbated the economic catastrophe, until in recent months they have pushed large sectors of people below the poverty line. , and made the simplest commodities out of reach, which threatened food security in the country.

With the beginning of this year, the annual inflation rate in Pakistan reached its highest level since 1975, at 27.6%, and is still expected to rise.

And last January, the country's currency (Pakistani rupee) collapsed to a historic low against the dollar after the government removed the maximum exchange rate in order to obtain the hoped-for rescue package from the International Monetary Fund, and then the rupee became one of the worst performing currencies in Asia.

In addition, foreign exchange reserves dwindled by more than half in one year, as foreign exchange reserves fell to less than $3 billion at the beginning of last February, which covers less than a month of imports.

Industrial production has also fallen steadily since last year in sectors that depend on imports, such as automobiles, chemicals and textiles.

Therefore, pessimism and discontent prevail in all classes of society, from businessmen to the poor, and from economic analysts to fruit sellers. In their view, the crisis no longer differentiates between the rich and the poor. In the rich neighborhoods of Karachi and Lahore, citizens install power outage generators and water tanks due to the continuous power outages. And water, while the state appeals to citizens to reduce tea consumption to only two cups a day in order to preserve scarce foreign exchange reserves, as Pakistan imports tea alone at $600 million annually.

Environment and climate change are deepening Pakistan's crisis.

The 2022 floods that flooded more than 10% of Pakistani lands caused billions of dollars in losses, in addition to the state losing about 40% of the cotton crop, 7 million workers in the textile sector losing their jobs, and 9 million rural residents moving below the poverty line.

The country said at the time that it was unable to bear the burden of recovering from the disaster in light of the slow international aid, and fruit and vegetable traders said that climate change was noticeably hurting their daily profits, as mangoes began to spoil faster for traders, for example, causing a decrease in profits.

Nearly a third of Pakistan was severely affected by the floods, and many areas are still submerged or recovering from the event that deprived millions of people of their land.

(Getty Images)

Pakistan has clearly become at the top of the list of economies that are feared to catch up with Sri Lanka in defaulting on debt repayments, and the credit rating agency Fitch said in mid-February that the Pakistani economy is experiencing significant credit risks in light of low levels of foreign exchange reserves, Emphasizing that default is a real possibility in Pakistan, the agency downgraded Pakistan's long-term foreign bond default rating from "CCC+" to "CCC-".

According to figures issued by the Central Bank of Pakistan last February, the external public debt decreased in the past year from 102.2 billion dollars to 97.5 billion dollars by the end of 2022, but the reduction did not come due to any increase in the country's income, but rather as a result of the withdrawal from the total cash reserves. foreigner, according to Reuters.

In this cloudy atmosphere, the only lifeline that the Pakistani state is clinging to is for the International Monetary Fund to resume its assistance program with a tiered loan of $6.5 billion, about half of which has been delivered so far.

And while Pakistan urgently needs to receive the new tranche in the program, this time the fund seems unwilling to make any concessions to Pakistan regarding the harsh policies it wants to impose on the country, unlike its "concessions" in previous decades.

It is unlikely that the fund will release the next tranche of its aid except with the full implementation of its recommendations, which means a strict adjustment that millions of poor Pakistanis will suffer from.

Despite this, the state in Pakistan has no other options other than moving forward with the IMF, and other than reviving its empty coffers, Islamabad is also seeking, behind the fund's loan, to dissuade major creditors, led by China, from demanding immediate payment of their dues, and to convince the markets again of the country's ability to wake up. .

In the course of all this, many Pakistanis feel that they are the victims of successive short-sighted governments, and a country that has not been able to establish a real pattern of development over the past decades.

Generals and debts... The deep causes of Pakistan's crisis

Pakistan has been embroiled in luxurious and glamorous projects, but ill-conceived and of little feasibility, such as major expansion of highways, airports, and rail systems.

(Anatolia)

After its success in testing five nuclear warheads in 1998, Pakistan is seen in the Islamic world as a model for a successful Islamic state.

This was not entirely far from true, as before 1990 Pakistan was one of the most successful economies of South Asia and the most growth, and even at some point in the eighties, it was able to overtake its arch-neighbor India, and achieved distinguished rates in the fight against poverty.

However, few have considered the nature of the Pakistani model, which was characterized by unsustainability and carried with it the seeds of its collapse.

What made the Pakistani model, then, incapable of achieving sustainable growth?

As we can see in the following lines, Pakistan has always taken the path of short-term reforms or tranquility instead of medicine, and the military establishment has dominated the country and got bogged down in debt, which led it to the current economic failure.

Pakistan has a long and complicated history with the International Monetary Fund, as it has been trapped in its ropes since 1958, and has not been able to escape from it since then.

It relied on foreign debt to meet its financing needs structurally, and has always prevailed in running the state of the mentality that Pakistan's strategic importance will always allow it to get money.

Islamabad has used the IMF 22 times since that time, in addition to the debts it borrowed from other countries.

While India established its long-term plan in 1990 to achieve sustainable development at high rates, Pakistan remained captive to loops with debt to achieve short-term stability, and therefore its main feature became spending more than it produced.

Unlike its neighbor India, the Pakistani economy was unable to shift from a rentier formula to a real productive formula, which caused an exacerbation of the deficit, which in turn led to an exacerbation of debt.

Hussain Haqqani, current director of the South and Central Asia division at the Hudson Institute in Washington, says:

On the other hand, there were no serious long-term policies to improve the sectors that could transfer the Pakistani economy to a new, sustainable phase that freed it from the debt cycle. Muhammad Zubair Khan, the former Pakistani Minister of Commerce, stated in a research paper entitled “Liberalization and the Economic Crisis in Pakistan.” That Pakistan has not carried out an elaborate plan to improve the efficiency of its spending since the 1990s, and that its budget cuts have been heading towards the easiest path, which is to reduce the bases on which development depends, while the country has been involved in luxurious and glamorous projects, but it is ill-conceived and of little feasibility, such as the major expansion of highways. And airports and rail systems, without economic integration with the sectors that are supposed to benefit from that boom in infrastructure and create real development.

Over the past decade, Pakistan has suffered from declining exports as a percentage of GDP in light of competition with its neighbors and its weak ability to generate a successful technological and manufacturing environment.

Hence, its share in world trade has continuously decreased, and its dependence on primary commodities for its exports has increased.

On the other hand, according to the 2020 indicators, Pakistan is ranked 108th among the countries covered by the Doing Business report issued by the World Bank, while India ranks 63rd, which means that the development of the business environment has not been taken seriously in Pakistan for many years, unlike its neighbors. .

Analysts also point out that agriculture has been neglected in the country despite its contribution of 24% of the national product, as Pakistan recently began importing basic crops that it did not need to import before, and this was a result of the lack of integrated long-term development plans.

Michael Kugelman, deputy director of the Asia Program at the American Wilson Center, summarizes the Pakistani experience in comparison to its neighbor and arch-enemy, saying that while India has taken serious steps to implement policies that achieve comprehensive education and health care, with a clear interest in the human element;

Pakistan's ruling elite ignored the most basic economic needs of the people, and the role of the human race in achieving a relative boom similar to that in which India succeeded compared to the countries of South and Southeast Asia.

A chronic crisis.. and an Indian concern

Followers of Pakistani affairs monitor the waning popularity of the political role of the army, which has begun to lose its traditional supporters in the ranks of the upper and middle classes in cities since the overthrow of "Imran Khan", the former prime minister who still enjoys great popularity.

(French)

Many political scientists today point to Pakistan as a model of how the military's dominance of a country can destabilize its political and economic stability in the long run.

The army controls between 18% and 23% of Islamabad's budget.

Firm control of the country granted inherent benefits to members of the military, such as cheap membership in clubs, land ownership, and social standing.

Economic policies have always served the military elites and the rich civilians who relied on luxury made from the wheel of debt and aid, while neglecting to develop long-term plans for sustainable development that benefited wider segments of the population.

As a result, some experts assert that removing the army's hand from the Pakistani economy is the first step towards reform, while some argue that the massive reduction in military spending itself is an inevitable necessity in light of the impending economic collapse.

Despite the importance of arming for Pakistan due to its location, the priority of feeding the Pakistanis has become more urgent, especially since the possibility of an all-out war with India remains remote in light of the nuclear balance between the two countries.

Therefore, observers of Pakistani affairs monitor the diminishing popularity of the political role of the army, which has begun to lose its traditional supporters in the ranks of the upper and middle classes in cities since the overthrow of "Imran Khan", the former prime minister who still enjoys great popularity.

With the worsening of the economic crisis, sharp criticism began on social media of the country's management style, as well as criticism began to be issued by some retired military personnel.

One of the policies the IMF wants Pakistan to adhere to in exchange for aid is ending tax breaks for export industries, as well as eliminating subsidies on fuel, gas and electricity.

Although the abolition of tax exemptions is one of the Fund's policies that is often criticized, particularly by those with a left-leaning orientation, the problem of tax policies in Pakistan is far beyond that point, as "Zubair Khan" indicates that the miserable financial situation of Pakistan in recent years is due to reasons Many, the most important of which is the narrow and unfair tax base.

Pakistan has one of the lowest tax-to-GDP ratios in the world, and 2021 figures indicate that two-thirds of people with a valid tax number and business did not file their annual tax returns.

Moreover, the tax system does not work in an upward manner so that it can collect from the richest to save the poorest, and there are concessions and exemptions for companies, large landowners and economic institutions affiliated with the army, which is estimated at $ 17.4 billion, according to the United Nations Human Development Report in Pakistan for the year 2021. So, Pakistan's economy is not only a rentier economy, but it is also characterized by a large amount of tax breaks, which makes the country always unable to collect the necessary revenues except through loans.

Similar to "Uzair Yunus"

It seems that the matter has reached a stage of danger that prompted some Indian political analysts to warn of the Pakistan crisis, warning that it may eventually harm India despite the competition of the two countries, because it affects India's exports to Pakistan, and India fears the intensification of the disaster in Pakistan and what it may bring. of large numbers of refugees.

In addition, China, which has accumulated many skirmishes with India in recent years, may take advantage of the crisis to increase its influence in Pakistan in a way that increases the concern of decision-makers in India in light of the geopolitical competition between the two Asian poles.

For these reasons, it is unlikely that Pakistan's neighbors will at least allow its downfall, but if Pakistan does not find long-term solutions, and work seriously on them to get rid of debt and follow paths of sustainable development, then it will continue to live in turbulent whirlpools of crises without stopping, and it will not always be helped by its regional and international status or its nuclear arsenal. .

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Sources

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