Pakistan's economy has been caught in a cycle of boom-and-bust so extreme that it has had to rely on outside assistance to keep itself afloat ever since it was carved out of India.
Till date, Pakistan has asked for and gotten 12 International Monetary Fund (IMF) bailouts, and is looking for its 13th and most expensive one yet. On top of these bailouts, it has gotten generous financial assistance from countries like Saudi Arabia and China. To stave off an economic crisis this time, it has received $6 billion ($3 billion deposit in balance of payments aid, $3 billion in deferred oil payments) from Saudi Arabia, a similar amount (or so it says, no one really knows yet) from China, and is in talks with the UAE and Malaysia to procure more.
Pakistan hopes for an IMF bailout too, but the talks have been inconclusive so far. But with its current account deficit standing at $17.9 bn for fiscal year ending 30 July 2018, as reported by The Express Tribune, even $6 bn from China and Saudi Arabia each won't cut it.
So why does a country that has been almost a failed State for much of its recent history keep getting bailed out? What do others gain?
The Usual Suspects
IMF: The International Lender
The IMF was created as a resource for member States to take out loans to stave off economic collapse. It utilises funds from quota payments made by its member nations to disburse the loans, and insists that countries abide by certain conditions – like implementing austerity and overhauling systems – in order to get the loan and get their countries back on track.
Its conditions and recommendations often include liberalising economies, which has prompted accusations of it pushing a neoliberal agenda (free markets, unfettered trade, small government) worldwide to the detriment of developing economies – and to the advantage of developed economies that lead the IMF, like the US, Germany, and the UK.
Pakistan has been in talks with the US-led IMF to secure a bailout, however they have been inconclusive. According to a Nikkei report quoting a Pakistani official, the IMF has insisted on transparency about the extent of Pakistan's One Belt One Road (OBOR) debt to China. IMF head Christine Lagarde had earlier said as much, demanding "absolute transparency" in any deal, reported Reuters.
The US has previously taken a strong line, saying that IMF money – and therefore US money – should not be used to pay off Chinese loans. But Pakistan has resisted this condition, as China is loathe to make the extent of the debt it holds public.
Kabir Taneja, Associate Fellow at ORF, tells The Quint:
“It will bring out into the open how much China has actually spent in Pakistan. Of course the numbers that come out of China’s BRI are conservative at best [...] So I think China would try all in its available power for that to not happen. It also plays into the larger Western narrative of countering China on its Belt and Road Initiative. It’s something that IMF is not going to bend on – if a bailout package has to be agreed on, transparency will be there. That’s not great news for China, let’s be honest.”
China: The New Benefactor
China, Pakistan's "all-weather friend", has rendered it economic assistance in the past. This time too, Pakistani PM Imran Khan visited Beijing, hat in hand, for a bailout, but seemed to have come back empty-handed.
Days later, he announced that China had given Pakistan a "big" aid package, but refused to specify how big, saying China did not want him to announce the amount, lest other countries come calling for a Chinese loan. Perhaps a far-fetched concern, considering the bad press Chinese loans have been getting recently for being exploitative of smaller countries.
For China, helping Pakistan has both advantages and disadvantages. Manoj Joshi, Distinguished Fellow at ORF, tells The Quint:
“China doesn’t have to do anything, all it has to do is keep on arming Pakistan and encouraging Pakistan and help undermine India’s security. That was the old format, now the format is that Pakistan is also a stepping stone to the Gulf through Gwadar. Everyone talks of CPEC, but the most important part of CPEC is the Gwadar port. It’s at the mouth of the Strait of Hormuz, and a lot of Chinese oil comes out of there, and China has an interest in the Gulf – so Pakistan now serves as a stepping stone to the Gulf as well.”
Pakistan and China are intertwined in China's OBOR initiative, of which the $62 billion China-Pakistan Economic Corridor (CPEC) makes up an important part.
For China, Pakistan acts as a distraction with which to keep India perennially occupied. If India is always looking at its border with Pakistan, it's looking that much less towards its border with China.
But while China has offered financial assistance to Pakistan in the past, it has not been a gift. Joshi continues:
“What you have to see is that the Chinese attitude to Pakistan is a dual one: One part is of course looking for commercial opportunity, and the second part of it is strategic. What they’re seeing is a strategic advantage – Pakistan is an old friend against India, so on and so forth. So at any given time, they will make a calculation as to what is more important to them; is it the strategic calculation or the economic calculation? That is difficult to determine.”
But the world's emerging economies that once looked to Chinese loans as boons, are now beginning to see the teeth those loans are hiding. A slew of countries, from Sri Lanka, to Nepal, to Bangladesh, are feeling the heat when they find themselves unable to repay the exorbitant interest rates the loans came with. Sri Lanka has already had to hand over its Hambantota port to the Chinese on a 99-year lease.
And China, for all its 'all-weather friendship’, is not in the business of handouts. Joshi says:
“China is very conservative in its foreign aid, that is the whole problem with the BRI – that they charge very high interest rates. They are very reluctant to give grants, even to friends, so it’s a matter of policy for them. They are not like the Arabs who kind of give away money as a feudal approach, the Chinese don’t have that, they are much more practical, they insist on getting interest back, so there are no giveaways with the Chinese.”
So Pakistan would be wise not to rely entirely on China, given that China doesn't want to be left holding the bag.
Saudi Arabia: The Feudal Lord
Saudi Arabia has been helping prop up Pakistan since its inception.
Majority-Sunni Saudi Arabia sees itself as the custodian of Mecca and Medina, the two holiest sites in Islam – and fancies itself as the hegemon of the Muslim world. Its competitor for legitimacy here is Iran – a majority-Shi'ite nation with a rich civilisational history. But Saudi Arabia has a couple of aces up its sleeves – it's allied closely with the world's only superpower, and it has cultivated a relationship with Pakistan, so that it can call upon its nuclear technology (and manpower) if needed.
Kabir Taneja says:
“Saudi Arabia has been funding Pakistan since it was formed, pretty much. For Saudi Arabia, Pakistan is sort of existential. In case, tomorrow, Iran does acquire a nuclear weapon, it will not take a long time for Saudis to get the same from Pakistan.”
Saudi Arabia did call upon Pakistan's manpower for the war in Yemen, but they were rebuffed. So why does Saudi continue bailing out Pakistan nonetheless? Omair Ahmad, South Asia Editor of the Third Pole, tells The Quint:
“This former US ambassador to Saudi Arabia had this really lovely phrase – “There are Saudis, and then there are people the Saudis pay to do their work” – not a direct quote. Whether it’s Americans or Pakistanis or anybody else, that is a very strong part of the worldview. ‘If you can buy allies, why not?’ [...] The Pakistanis are a key part of Saudi’s large vision vis a vis Iran, and they can’t afford them to be weak or to not follow their instructions. And the one big leverage that Saudi has right now is money, and that’s one big leak for Pak.”
Pakistani PM Khan has also been touring other friendly nations like the UAE and Malaysia in the hope of drumming up more assistance.
As of now, Pakistan is caught between the IMF's insistence on transparency, and Chinese insistence on opacity – an unenviable tug-of-war to be in.
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