Pakistan’s economy is in ruins, but Islamabad clearly has access to other “dodgy funds”

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File photo | Pakistan’s Prime Minister Imran Khan with General Qamar Javed Bajwa | Facebook / ImranKhanOfficial

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It is startling on one level but not surprising on another. Just recently, the former head of the Pakistani tax authorities made it clear that the country was bankrupt and “not a running company”. It is more than uncommon for a country that is at war neither with itself nor with others to level itself to the ground. Afghanistan yes, but Pakistan? This is strange, especially since after two decades of covert operations and the support of a 60,000-strong Taliban army it has just “won” an entire country. It’s expensive work. And this patronage continues despite Pakistan’s apparent economic decline, according to the new Country Reports of Terrorism. It’s all pretty confusing. On the one hand it is a king and on the other hand a beggar.

The economy is broken, but Islamabad seems to have access to other sources of money.

Certainly bankrupt

The numbers speak for themselves, despite the State Bank of Pakistan’s (SBP) “Sunny Side Up” approach. Pakistan’s total debt and liabilities have exceeded PKR 50.5 trillion, an increase of around PKR 20 trillion under the current Imran Khan administration. SBP data shows that the current account deficit has risen to 4.7 percent of GDP, well above the 2-3 percent target for 2021. Foreign exchange reserves at the state bank fluctuate from crisis to crisis and are stabilizing somewhat after a recent loan from Saudi -Arabia of $ 3 billion, part of the total of $ 4.3 billion in aid. This should improve the Pakistani exchange rate. It has not. The rupee continued to decline to hit 179 against the dollar, suggesting grim economic fundamentals.

The state bank blames the high debt service and the import of food such as wheat, sugar and vegetables for the burden on the budget. The high level of cotton imports to support the Pakistani textile industry has also drained foreign currency reserves. Previously, pressure from traders had led Pakistan to agree to import all of this from India, but the move failed due to political pressure. Former FBR chairman Syed Shabbar Zaidi categorically stated that the debt figure is at levels Pakistan can never pay. In an extensive thread On Twitter, he argued that “bankruptcy” is a condition when loans cannot be paid foreseeable income. That is a logical position that can hardly be argued with. But for those who argue, there is abundant evidence of Pakistan’s deteriorating credit rating, which is making itself felt in relation to Saudi credit. The new loan charges a higher interest rate, with Pakistan paying $ 120 million in interest on the loan – a $ 24 million increase over the similar facility from 2018. Other clauses are even tougher. The loan must be returned at any time within 72 hours of Saudi Arabia’s written request. A delay in the payment of interest or the servicing of public debts, as well as an exit from the International Monetary Fund (IMF), would be counted as a default in the contract.

Meanwhile, Pakistan reportedly paid PKR 26 billion in interest on a $ 4.5 billion credit facility that was originally used to boost trade but was diverted to repay the Saudis, among other things. To pay China, Pakistan turns to the IMF to save it from borrowing three times what it has taken out. In other words, a classic homemade debt trap that only gets worse over the years as Islamabad nimbly jumps from one loan to the next. It’s beyond bankruptcy. It’s a state of collapse.


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The secret of increasing remittances

Then there is the one source that the State Bank relies on to keep its foreign exchange stable and the economy going, and that is the remittances from the workers. At the suggestion of the Financial Action Task Force (FATF) and the IMF, Pakistan has taken a number of measures to encourage the use of formal remittance channels instead of the traditional hawala channels. While this certainly explains some increase in remittances, it cannot explain a 26.9 percent year-over-year increase in FY21, at a time when Covid-19 has decimated most economies, resulting in a global decline in remittances has led. The largest amounts are expected to come from Saudi Arabia, but the kingdom closed its borders with Pakistan last year, an issue high on the agenda during the first Saudi official visit in July after the political rift last year.

Foreign Minister Shah Mahmood Qureshi referred to around 400,000 people stranded due to travel restrictions in Riyadh. That makes the 28.2 percent growth in Saudi remittances even more puzzling and certainly requires closer examination. In addition, Pakistan’s own figures from the Bureau of Emigration and Overseas Employment show that the export of workers has fallen drastically from 625,876 in 2019 to currently 223,156 people abroad. It is worth noting that organized crime cartels have long used remittances for money laundering. Mexico is another country that has seen record numbers of money transfers to the US, in a pattern almost similar to that of Pakistan. A FATF report describes how remittances from organized crime are used for money laundering, including for drug cartels.


Also read: Heroin and human trafficking are the only two sectors of the Afghan economy that are still thriving


The drug business

Speaking of drugs: The 2020 UN drug report reports a 37 percent increase in drug cultivation in Afghanistan compared to the previous year. This is the third largest increase in cultivation since 1994. The southwest region remains Afghanistan’s largest opium-producing region with 71 percent of the total production, which also includes large areas such as Helmand and Kandahar on the border with Pakistan. The strange thing is that this spike occurs when dry opium prices in the market are at record lows, defying business acumen.

Drugs are now being released by sea and land, which is reflected in seizures after seizures. Most recently, the Sri Lankan Navy intercepted a 250kg narcotics boat, which is part of a number of other recent seizures, including a local fishing vessel that was caught in August weighing 290kg and two other seizures of 336kg and 170kg of heroin in September. The Maldives has seen another heroin flood, all of which came from Afghanistan via Faisalabad and Lahore in Pakistan and then left Balochistan. It’s just a route. Gujarat has become a major landing site, not only having arrested Pakistanis but also caught 2,988 kg of heroin in just one large catch. All of this affects the local mafia, including Sri Lankan Don Angoda Lukka, who was mysteriously killed in Coimbatore last year, and an Afghan youth in Delhi. This is now a national security issue for India. Strangely enough, however, there is nowhere the kind of data on drug cartels operating out of Pakistan that was once available in the 1990s when, for example, a Central Intelligence Agency report “Sowing the Wind” exposed critical details of narco-political cartels in Pakistan . Today the silence is fascinating.

Apparently there is a network of criminal networks operating through and from Pakistan that involve a variety of other activities, including people smuggling, mostly of desperate Afghans fleeing the war. As the famine mounts, Pakistan seeks to involve the international community in responding to an impending refugee crisis. But the damage is done. Even if the ISI takes a pose after its “victory” in Afghanistan, Pakistan has developed into one of the most heroin addicted countries in the world with an estimated 6.7 million drug users, most of them in border areas.

The dwindling economy is therefore only part of the cost that Pakistan paid for its “Afghanistan adventure”. There is more, including institutional decay and growing radicalism, fueled by the Taliban’s victory. A bankrupt state with a monstrous ego that sees itself as a “regional power” is bad enough. What’s worse is that it’s spreading outward to the rest of South Asia, some on purpose, sometimes not. Anyway, it’s time to stop crying. And maybe Islamabad needs to reconsider the issue of trade with India. Because losing face is better than losing a country.

The author is a Distinguished Fellow at the Institute of Peace and Conflict Studies, New Delhi. She tweeted @kartha_tara. Views are personal.

(Edited by Neera Majumdar)

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