What Pakistan’s Collapse Could Mean for the World

What Pakistan’s Collapse Could Mean for the World

Vendors sell fruit under battery-powered lights during a power outage due to an electrical grid failure in Lahore, Pakistan, January 23, 2023.

Photo: Betsy Joles/Bloomberg via Getty Images

Last year brought Pakistan to the brink. A series of continuing disasters – including catastrophic floods, political paralysis, explosive inflation and a resurgent terrorist threat – now risk sending a key global player, if troubled, into a full-blown crisis. Should the worst happen, as some experts warn, the disaster unfolding in Pakistan will have consequences far beyond its borders.

“It’s a country of 220 million people, with nuclear weapons and serious internal conflict and division,” said Uzair Younus, director of the Pakistan Initiative at the Atlantic Council’s South Asia Center. . “The world did not like the exodus of refugees and arms from countries like Syria and Libya. By comparison, Pakistan is much larger and more substantial. »

“If the economy remains in a moribund state and there are shortages of goods and energy resulting in a political crisis on the streets of major cities, this would also allow the Pakistani Taliban and other terrorist groups to start to hit the government more directly,” said Younus, who is also vice president of Asia Group, a strategic consulting firm. “There could be a significant weakening of the state and its ability to impose order.”

It is difficult to overstate the difficulty of Pakistan’s current situation. An unfortunate series of recent events combined with chronic mismanagement has created a potentially deadly threat to Pakistan’s political system.

“There are three crises intersecting right now in Pakistan: an economic crisis, a political crisis and a security crisis that has escalated since the fall of Kabul,” Younus said, calling the situation “the worst threat to the national cohesion of Pakistan”. since 1971” — the year Bangladesh fought for and gained independence from Pakistan.

Pakistan’s foreign exchange reserves have reportedly shrunk to just $3.7 billion, barely enough for a few weeks of energy imports to run its cities and businesses, while its public debt has soared to a staggering 270. billions of dollars. Pakistan has been particularly affected by the war in Ukraine which, together with other developing countriesforced him into a bidding war for rare liquid natural gas that he couldn’t afford.

Pakistan’s crushing debt burden has forced Prime Minister Shehbaz Sharif to plead with the International Monetary Fund to relaunch a financial bailout that was put on hold early last year. Negotiations are ongoing because the IMF would be demanding painful concessions – a tough sell ahead of back-to-back elections due later this year.

Meanwhile, there are already signs that economic pressure will impact Pakistanis’ most basic needs. At the end of January, Pakistan suffered a unprecedented national blackout while the power was cut across the country for more than 24 hours. While the cause of the outage is unclear, it could be a deal breaker for what lies ahead.

“Pakistan’s power generation capacity is significantly dependent on the continued import of fuel,” said Yousuf Nazar, a Pakistani economic analyst and former banking executive. “You can imagine what would happen if we started to see blackouts and blackouts, or even transportation fuel shortages, at a time when the country is also facing 40% inflation.”

Worsening crises, particularly dire for a debt-ridden economy without strong political leadership and a kleptocratic elite, have been slow to come. While much of Asia has become gradually Wealthy and stable over the past few decades, Pakistan has remained poor, chaotic and unstable.

“During the globalization and trade liberalization that happened across Asia in the 1990s, Pakistan was busy playing power games between military and civilian elites,” Nazar said. “This current crisis was brewing long before the war in Ukraine, which was the straw that finally broke the camel’s back.”

“This current crisis was brewing long before the war in Ukraine, which was the straw that finally broke the camel’s back.”

Pakistan’s economy has long been characterized by a set of wildly corrupt policies designed to provide subsidies to civilian elites and military officials while neglecting the vast majority of the population who work in industries like agriculture and textiles. But the injection of foreign money that has funded the lavish lifestyles of Pakistan’s elites seems to be drying up.

Saudi Arabia, a long-time donor to Pakistan, announced last month that future aid programs to foreign countries would depend on internal market reforms – a clear warning to recipients like Egypt and Pakistan whose economies are characterized by bloated public sectors and military control. The United Arab Emirates recently committed to provide financial assistance in Pakistan, but the amount is barely enough to cover imports of vital goods for a few more weeks. Meanwhile, China, which owns 30 percent of Pakistan’s debt, has so far shown no willingness to renegotiate terms, while the United States has largely withdrawn from the region after its bitter exit from Afghanistan.

Pakistan’s relations with India, its economically ascendant neighbor now ruled by a bellicose Hindu nationalist government, also show no signs of improving.

“A lot of people talk about what sets India and Pakistan apart in terms of economic trajectories, especially since until the 1980s Pakistan’s trajectory was more positive. There are so many factors that you could mention in terms of years of bad policies, but you also have to talk about the issue of elite capture,” said Michael Kugelman, deputy director of the Asia program at the Wilson. Center.

“India has made efforts to implement policies that come close to things like universal education and access to health care,” he continued, “while in Pakistan, those who those in power have simply ignored the economic needs of the people”.

Local residents line up to buy wheat flour at government-controlled prices in Islamabad on January 10, 2023. The crisis has increased the pressure.  (Photo by Aamir QURESHI/AFP) (Photo by AAMIR QURESHI/AFP via Getty Images)

Local residents wait to buy wheat flour at government controlled prices in Islamabad on January 10, 2023.

Photo: Aamir Qureshi/AFP via Getty Images

Economic crisis comes with political instability that could weaken the grip of the state and make Pakistan increasingly difficult to govern from year to year.

After he was ousted from power last year in a dispute with his former supporters in the army which he described as a US-led plot, Imran Khan held mass rallies aimed at reinstalling himself as as prime minister. Amid a wave of targeted killings and arrests of his allies and supporters, Khan was himself injured in an assassination attempt last November when a gunman shot him during a an election rally. A polarizing figure in Pakistani politics, Khan has a broad and engaged base. If he had been killed, it is easy to imagine that Pakistan would descend into an all-out civil conflict.

As things stand, all major political parties, despite their fierce differences, are invested in maintaining the integrity of the country, and the military remains a powerful final arbiter on politics. But toxic political wrangling and frequent changes in leadership have made responsible management of the economy even more difficult, setting Pakistan on the path to deeper problems.

“If you are unable to meet the economic needs of the people and simply respond with force, it will only catalyze greater anger.”

“State fragmentation is not possible, but we could see a deep economic crisis that pushes many people below the poverty line, puts basic commodities out of reach, increases food insecurity and also foments public anger,” Arif said. Rafiq, non-resident researcher at the Middle East Institute and specialist in Pakistan. “This can have real political consequences, not only for political parties, but also for the army. If you are unable to meet people’s economic needs and simply respond with force, it will only catalyze greater anger.

In recent months, Pakistan has seen a resurgence of terrorism by radical Islamist groups, as well as ethnic militants in the resource-rich province of Balochistan. The Pakistani Taliban, who killed thousands of Pakistanis in the war on terror, announced their comeback with a horrific suicide attack last month that killed more than 100 worshipers attending Friday prayers at a mosque. The attack is a warning sign that instability in neighboring Afghanistan, which has suffered tens of thousands of deaths during the past two decades of US occupation, could once again impact Pakistan.

The economic and political crises have also extended to the slow recovery of millions of people across the country from last year’s historic floods that put about one-third of Pakistan’s landmass underwater and displaced millions of its poorest citizens.

Although the disaster can be blamed in part on climate change caused by wealthy countries, international aid has been slow and meager, leaving Pakistan on its own to pick up the pieces.

Former Prime Minister Asif Ali Zardari, known for his extravagant personal corruptiononce would have said US diplomat Richard Holbrooke has said Pakistan is ‘too big to fail’ – comparing the country to US banks which received massive bailouts to stave off collapse in 2008. Pakistan is a nuclear poweras well as the world’s fifth most populous country, it remains to be seen whether its leaders can pull themselves together and find a way out of the onslaught of crises – possibly the worst in the country’s history.

“There is huge uncertainty because people don’t know if Pakistan will simply default on its foreign loans this year,” Rafiq said. “There is heightened risk across the board, and every major indicator has taken a downward turn. It’s hard to see a path to stability because the government’s legitimacy comes from its ability to manage the economy – and things are not going to improve in the foreseeable future.