IIt’s surprising on one level, while not at all surprising on another. Most recently, the former head of the Federal Board of Revenue of Pakistan noted clearly that the country was bankrupt and “was not a going concern”. It is more than unusual for a country that is not at war, neither with itself nor with anyone else, to collapse. Afghanistan yes, but Pakistan? It’s strange, especially since he has just “won” an entire country after two decades of covert operations and support for a Taliban army from 60,000. It is expensive work. And this patronage continues, according to the new “Country Reports on Terrorism”, despite Pakistan’s apparent economic decline. This is all quite confusing. On the one hand, it is the king, and on the other, a beggar.
The economy is down, but Islamabad appears to have access to other sources of finance.
The figures themselves are revealing, despite the decision by the State Bank of Pakistan (SBP) ‘sunny side’ approach. Pakistan’s total debts and liabilities crossed 50.5 trillion PKR, marking an increase of some PKR 20 trillion under the current government of Imran Khan. SBP The data shows that the current account deficit increased to 4.7% of GDP, well above the target of 2-3% for 2021. Foreign exchange reserves with the State bank teetering from crisis to crisis, stabilizing somewhat after Saudi Arabia’s recent loan of$ 3 billion, which is part of a total aid package of $ 4.3 billion. This was to improve Pakistan’s exchange rate. He does not have. The rupee plunged further to reach 179 against the dollar indicating gloomy economic fundamentals.
the State bank blames the pressure on fiscal resources on high debt service, as well as food imports, including wheat, sugar and vegetables. High cotton imports to support Pakistan’s textile industry have also eaten away at foreign exchange reserves. Previously, pressure from traders had led Pakistan to accept import all from India, but the movement failed due to political pressure. Former RBF chairman Syed Shabbar Zaidi has categorically stated that the debt figures are at levels Pakistan can never pay. In a vast thread on Twitter he argued that “bankruptcy” is a condition when loans cannot be paid from predictable gains. It is a logical position which can hardly be disputed. But for the sake of argument, there is plenty of evidence for Pakistan’s declining creditworthiness, apparent in terms of the Saudi loan. The new loan charges a higher interest rate, Pakistan will pay $ 120 million in interest on the loan, an increase of $ 24 million from the similar facility in 2018. Other clauses are even more. severe. The loan must be returned within 72 hours of a written request from Saudi Arabia at any time. Any delay in paying interest or servicing the public debt would be considered a breach of the agreement, as would a withdrawal from the International Monetary Fund (IMF).
Meanwhile Pakistan reportedly paid China 26 billion PKR in interest on a $ 4.5 billion loan facility originally intended to promote trade but diverted to repay the Saudis, among other things. To pay China, Pakistan turns to the IMF to bail out loans that are three more time than what is borrowed. In other words, a classic debt trap of its own making, which only gets worse over the years as Islamabad nimbly shifts from one loan to another. It is beyond bankruptcy. It is a state of collapse.
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The mystery of the increase in remittances
Then there is the only source that the State Bank relies on to keep its forex stable and the economy stable, and that is workers’ remittances. Led by the Financial Action Task Force (FATF) and the IMF, Pakistan has taken a series of measures to encourage the use of formal channels for remittances, rather than the usual Hawala channels. While this certainly explains to some extent an increase in remittances, it cannot explain a year-over-year increase in 26.9 percent in FY21, at a time when Covid-19 decimated most economies, leading to a drop in remittances globally. The largest amounts come, as one would expect, from Saudi Arabia, but the Kingdom had closed its borders to Pakistan last year, an issue that was addressed as a priority during the first Saudi official visit to July after last year’s political break.
Minister of Foreign Affairs Shah Mahmood Qureshi referred to around 400,000 stranded at home due to Riyadh travel restrictions. This makes the 28.2 percent growth in Saudi remittances is even more puzzling, and certainly needs a closer look. In addition, Pakistan has figures of Office for emigration and employment abroad shows that the export of labor has significantly decreased from 625,876 people at present to 223,156 people abroad. It should be noted that remittances have long been used by organized crime cartels to launder money. Mexico is another country that has seen record levels of remittances to the United States, in a pattern almost similar to Pakistan. A FATF Report details how remittances are used by organized crime to launder money, including for drug cartels.
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The drug trade
Speaking of drugs, the UN Drug Report 2020 reported a 37% increase in drug cultivation in Afghanistan over the previous year. This is the third largest increase in cultivation since 1994. The southwest region remains the main opium-producing region of Afghanistan, accounting for 71% of total production, which includes important regions like Helmand and Kandahar, on the Pakistan border. What is curious is that this rise occurs when the prices of dry opium in the market are at an all time high, defying business acumen.
During this time, the drugs flow out through the sea and land, apparently seized after seizure. Correct recently, the Sri Lankan Navy intercepted a boat carrying 250 kg of narcotics, part of a series of other recent seizures that included a local fishing vessel caught with 290 kg in August, and two other interceptions of 336 kg and 170 kg of heroin in September. The Maldives saw another influx of heroin, all coming from Afghanistan via Faisalabad and Lahore in Pakistan, then to go out from Balochistan. It’s just an itinerary. Gujarat turned into a major disembarkation point with not only the arrest of Pakistanis, but up to 2,988 kg of heroin be caught in one massive blow. All of this involves the local mafia, including the Sri Lankan donation Angoda lukka mysteriously killed last year in Coimbatore, and a afghan youth in Delhi. It is now a national security issue for India. Yet, oddly enough, there is nowhere the kind of data available on drug cartels operating out of Pakistan that were once available in the 1990s when, for example, a report by the Central Intelligence Agency “”Sow the wind‘brought out critical details about drug-political cartels in Pakistan. Today, the silence is intriguing.
Obviously, there is a network of criminal networks operating across and outside Pakistan which includes a variety of other activities including human trafficking, mostly desperate Afghans fleeing the war. As famine increases, Pakistan tries to involve the international community in the fight against the looming refugee crisis. But the damage is done. Even as the ISI strikes a pose in Afghanistan after its ‘victory’, Pakistan has emerged as one of the most addicted to heroin States in the world with an estimate 6.7 million drug addicts, mostly in border areas.
Its skidding economy is therefore only part of the costs Pakistan paid for its “Afghan adventure”. There is more, including institutional decadence and a rise in radicalism, spurred by the victory of the Taliban. A failed state with a monstrous ego that sees itself as a “regional power” is bad enough. The worst part is that it is spreading to the rest of South Asia, some with intention, sometimes not. Either way, it’s time to cry stop. And maybe Islamabad needs to reconsider the issue of trade with India. After all, it is better to lose face than to lose a country.
The author is Distinguished Fellow at the Institute of Peace and Conflict Studies, New Delhi. She tweets @kartha_tara. Opinions are personal.
(Edited by Neera Majumdar)
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