Sovereignty At Risk As Pakistan Nears Default

Sovereignty At Risk As Pakistan Nears Default
The alarming decrease in the State Bank of Pakistan's foreign exchange reserves, and the rather bizarre attitude of the incumbent federal government towards the economy are the cause of many a sleepless night for the country’s citizens. 

Whatever the factors causing the imbalance may be, Islamabad’s forex reserves have hit a new low, and have depleted to $4.67 billion from $16 billion, within the span of just eight months.

This is an alarming trend, and will have widespread strategic and economic implications for the country. The country’s political elite however, it seems, has given a cold shoulder to the national interest, and continue to indulge themselves in the sordid game of thrones.

Although the PM of Pakistan, Shahbaz Sharif, is very much sanguine about the ninth review program of the International Monetary Fund (IMF), ground realities are militating against the optimistic tone of the PM.

In the same vein, the near-term financial assistance from the Kingdom of Saudi Arabia (KSA) and China may seem bleak due to their tight economic conditions. According to the economic outlook report published by the IMF in October 2022, China's economic growth may be one of the slowest in 2023.

Unequivocally, the common people of the country will again bear the heavy brunt of the blunders of the strategic and political elite of the country.

There is no denying the fact that a confluence of external factors has been aiding and abetting Pakistan's economic complexities: the aftershocks of the Covid-19 pandemic, the slowdown in China under the controversial zero-Covid policy, and the ongoing war between the Kremlin and Kyiv on the European continent.

However, at the same time, the country's ruling elite has left no stone unturned to enfeeble the already fragile economy by preferring their own economic interests and pursuit of power over the national interest.

The burgeoning fiscal and trade deficits and the poor management of economic policy from the incumbent government have sunk the country more profoundly into the quagmire of economic default.

It is not unprecedented in the history of Pakistan that the country's forex reserves deplete to such an extent, but the geopolitical and geoeconomic situations of the country and the world are markedly different this time.

Therefore, there are two plausible situations for the state. Both are not far from danger; either the country will default or the country will be bailed out, admittedly at a heavy cost. Therefore, it makes good sense to say that the sword of Damocles is dangling over the head of Islamabad.

To state it rather plainly, the sovereignty of the sovereign is at stake. No doubt, the world cannot afford another failed state in the backyard of the Taliban-led Afghanistan.

The growing confrontation between Washington and Beijing in the Indo-Pacific region has put regional actors in the crosshairs of the two great powers. Faced with China’s remarkable economic growth, the USA is leaving no stone unturned to contain China’s growing economic and military muscle through an off-shore balancing policy.

India, along with some other countries in the region such as Japan, has been singled out by the US for this purpose. In other words, Washington wants to use New Delhi as a bulwark against Beijing.

However, the unenthusiastic response from New Delhi on the eve of the Russian invasion of Ukraine and the new axis between China and Russia have Washington worried about the Russification of South Asia.

The US likely wants to increase its influence in the strategic decisions of Islamabad to pressurize India, on the one hand, and China, on the other hand. As a result, Islamabad will once again become a rolling stone among great powers politics.

Unequivocally, the common people of the country will again bear the heavy brunt of the blunders of the strategic and political elite of the country.

What will be the future of the country then? Is there any chance to straighten out its economic complexities in the near term?

Unfortunately, prospects for immediate recovery are bleak. However, the country can transform the orientation of its economy by materializing economic diplomacy as mentioned in Section 4 of the new National Security Policy.

Moreover, political stability is the need of the hour, and it seems that fair and fresh elections, as soon as possible, are the only panacea for the prevailing political turmoil in the country. Last but not least, the development of the export potential of the country must be prioritized, through incentives and subsidies, to narrow down the current account deficit of the state.

The author has a keen interest in great power politics.