Pakistan Sinking Deeper Into The Debt Trap

Waseem Shehzad

Pakistan’s Finance Minister Muhammad Aurangzeb, known to friends and acquaintances as ‘Auri’, is running around like a chicken without a head. Banker by profession, he accepted the thankless job of finance minister in March 2024 in a regime headed by criminals and rapists illegally installed by the military. If ‘Auri’ had any sense—the fact that he would accept the distortion of his name reflects his inferiority complex—he would have declined the offer.

Opportunism and rubbing shoulders with the powers that be, however, is a peculiar trait of the Pakistani elite. For Auri, it was too good an opportunity to pass even if he has a thankless task with no certainty of success. The main reason is that he is not free to apply the fundamental principles of economics. He has to pander to the whims of the morons in uniform.

Pakistan is a bottomless pit. No matter how large the external handouts, they cannot solve its problems. There was much celebration when the International Monetary Fund (IMF) announced in July 2024 that a staff level agreement had been finalized to provide $7 billion in loan.

This is Pakistan’s 25th loan agreement with the IMF and reflects the country’s desperate economic plight. The loan, however, has come with stiff conditions, not all of them in Pakistan’s control.

The IMF demands that Islamabad must first secure rollover assurances from its other creditors, of which there are many. Further, they must also agree to reschedule at least some of the interest payments falling due during the year. Only then, will the IMF agree to release the funds.

Let us identify Pakistan’s creditors. In addition to Saudi Arabia, the UAE and China (to whom collectively it owes $12 billion) there are multilateral institutions like the World Bank, IMF and the Paris Club as well as bondholders. Pakistan owes more to these multilateral institutions than to China, according to Murtaza Syed, a former deputy governor of the State Bank of Pakistan.

Syed now works for the Beijing-based Asian Infrastructure Investment Bank (AIIB). He disagrees with the IMF demand that Pakistan should first get agreement from its other creditors, primarily China, for debt rollover before it would release the funds.

He referred to it as “Fund-speak for securing secret debt relief from China. It is wrong, incomplete, and dangerous,” he warned. “It is wrong because Pakistan’s debt problem is not a Chinese debt trap,” unlike some other countries.

Pakistan is trapped in a Catch-22 situation. The IMF demands that a financing gap be filled first before the programme will release its funds. Creditors insist that a functioning programme must be in place before they will agree to roll-over their debt. They know that Pakistan is ruled by criminals and thieves who will steal wherever their grubby hands can reach.

The creditors may have overlooked even this but for the fact that they know that Pakistan cannot meet its debt obligations. The military-installed regime, with connivance of the army high command, is looking at selling state assets. These include mines, agricultural land, airports and seaports, the country’s airline PIA and a host of other state enterprises.

Given its dire straits, Pakistan’s state enterprises will be sold at throw away prices. Even if a fair market price is secured for these assets, the money coming in will only be a stop gap measure. With its depleted foreign exchange reserves, foreign creditors want assurances that they will be able to repatriate their profits.

At a time when Pakistan is asking creditors to roll-over the interest on money borrowed in the past, what value would its assurances have? Besides, when Pakistani businessmen have no confidence in the economy and are investing their money abroad, foreign investors can hardly be blamed for being cautious.

Even a pro-regime newspaper like the Karachi-based Dawn, was forced to say: “The country’s addiction to foreign loans to pay its bills has forced many to raise critical questions about its financial future and economic sustainability.”

Pakistan’s economic problems stem from lack of political stability. This is the direct result of the military’s overbearing attitude interfering in every aspect of life. Last year, the formation of the Special Investment Facilitation Council (SIFC), was announced with much fanfare. It is headed by an army general.

Soon thereafter, it was announced that $70 billion in foreign investment will flow into Pakistan. This was based on the assumption that since the army is now in charge of economic policy, it will provide security and stability and foreign investors would have greater confidence.

The mad scramble to secure another tranche of IMF loan and to get creditors to rollover their debt indicates that not a penny of the supposed $70 billion has come to Pakistan. It would be foolish for foreign investors to commit such huge sums given the tattered state of Pakistan’s economic fundamentals.

The idea that the SIFC, headed by a general, would assure foreign investors has proved illusory. The army is trained to destroy, not build yet the men in khaki think that they can solve Pakistan’s problems by using more force.

Two of the country’s four provinces—Balochistan and Khyber Pakhtunkhwa—are in turmoil. The military is involved in crushing the people’s genuine aspirations. Instead of allowing a political process to solve these issues through dialogue, the military, more specifically the army is busy fighting its own people.

While it acts as an army of occupation, its chief, General Asim Munir, insists that people must love the army. Can love and respect be earned by holding a gun to someone’s head?

There are thousands of missing persons in Balochistan. The army brands them as “terrorists”. Not one person has been charged, much less convicted in a properly constituted court of law. When the missing persons’ relatives ask for information about their whereabouts or even news of whether they are alive or dead, they are accused of supporting “terrorists”.

Similar allegations are hurled at people in the KPK. No attempt is made to understand their grievances and how to address them, apart from using brute force.

Pakistan is heading in the wrong direction. At the root lies the army’s overbearing attitude and refusal to confine its activities to what is prescribed in the constitution. The one person who has a slim chance of stabilizing Pakistan’s political and economic situation—Imran Khan—languishes in a stinking jail cell.

His “crime” is that he wants to hold to account the crooks and mass murderers who have hijacked Pakistan’s polity. The army and the gang of thieves and rapists won’t allow him to do so. The price is paid not only by Imran Khan but also by millions of poor Pakistanis.

Pakistan