Home > Archives (2006 on) > 2019 > Grave Economic Crisis in Pakistan — Some Thoughts to Share

Mainstream, VOL LVII No 15 New Delhi March 30, 2019

Grave Economic Crisis in Pakistan — Some Thoughts to Share

Sunday 31 March 2019

by Gouri Sankar Nag and Arpan Bhattacharya

Going by the recent socio-economic indicators, many scholars are now of the view that Pakistan, unless it mends its ways urgently, would soon be gripped by grave economic trouble. The fast depletion of foreign exchange reserves owing to the unbridled import bill and unsatisfactory exports coupled with the rising value of the US dollar against the Pakistani rupee might trigger a looming balance of payment crisis and compel Pakistan to go to the IMF for a quick bailout. Though in a recent interview the Pakistani Finance Minister pronounced the end of an economic crisis, the country seems likely to need a bailout. Though, according to Dubey, the growth of the Pakistan economy in the post-Partition period until 2010 was, on an average, five per cent per annum which is quite an impressive rate of growth compared to other South Asian countries.

However, behind the scenes there were a number of anomalies. On the other hand, Washington has also been skeptical of China’s role in Pakistan. Moreover, it has to be noted that recent governments have been far too active in some areas and far too lackadaisical in others, thereby adversely affecting productivity and economic well-being. We need to acknowledge that Pakistan has experienced a tremendous macroeconomic improvement over the last few years. Yet, there are some artificial exogenous factors that could be crucial for judging the recent crisis in the economy. According to a report published by the State Bank of Pakistan, the country’s total external debt servicing stood at 2.09 billion US dollar during the first quarter of 2018. (The Nation) It would be interesting to see how the upcoming government would tackle this precarious issue.

A major part of Pakistan’s economy relies on the agriculture sector, which occupied 9.5 per cent share in the gross domestic product, according to a survey conducted in 2016. It also shows that low crop yields hamper Pakistan’s ability to realise its full potential. Agricultural commodities, particularly cotton, provide critical inputs for Pakistan’s major manufacturing industries. However, according to a report conducted by the Times of India, the low productivity acts as a serious barrier to Pakistan becoming a major player in world industry. It also points to the loophole through which the Chinese Government is looking for avenues to enter Pakistan’s agricultural sector. The Chinese state and banks are expected to provide capital and loans to the Chinese companies interested in setting up ventures in Pakistan. China is further going to establish fertiliser and meat processing plants in Sukkur in the Sindh province. According to a reporter, though self- sufficiency is desirable, there are fears that Chinese investors may dictate their terms due to their rapidly growing investments in Pakistan. (

The question is whether the newly installed PTI Government would be able to effectively address it or not because although it has won a majority of seats, the party is yet to ensconce its footing in the country in which the voting- pattern follows ethnic configuration tied up in a partisan manner. One of the first challenges it would require to tackle is easing the foreign reserves’ crunch. The nation’s buffers have been steadily dwindling as a result of surging import bills and debts, forcing the Central Bank to devalue the currency four times since December 2017. All of that comes against the global backdrop of higher oil prices, raging trade war tensions between the US and China. Low reserves also signify that the nation has less funds to pay for the much-needed imports to keep economic growth going and for the Central Bank to maintain currency stability.

The scenario is complicated and precarious also because Pakistan’s top brass of the Army, that is to say, the establishment, covertly supported the PTI at the time of election. Hence, there is high probability that the new regime would be amenable to the pressure of the vested interests well-entrenched in the polity itself, rather than undertaking unpopular measures, something resembling a ‘shock therapy’. The new government has already admitted its predicament due to the worsening financial condition and the tough challenge confronting it owing to mounting pressure for job creation. In a sense, this legitimises its unleashing of certain austerity measures to meet the current deficits. But here again one surmises whether the steps being taken are mere eyewash or a well-crafted attempt to avoid taking recourse to unpopular steps like internal revenue mobili-sation through introduction of newer taxes.

Why the new government is not persuading the military elites to cut its defence budget is another associated issue to ponder over. Whether this has an inbuilt connection with the logic of what T.V. Paul once said of Pakistan as ‘warrior state’ that creates certain compulsions is hard to refute. The new government is known for its close nexus with the top echelons of the military. Why then it is not being able to convince its Army of the dire need for thrift as temporary firefighting measures are, at best, a conjecture. Does the PTI Government think such proposition won’t be acceptable to the Army which is deeply involved in different businesses and also entangled with projects and tenders associated with hidden kickbacks? So, the Army would in all probability not agree with any compre-hensive campaign to reform the system fraught with deep-rooted corruption. The new govern-ment needs strong economic planning and has already constituted an 18-member Economic Advisory Council for competent governance. But here again its narrow faith-driven band-wagoning becomes amply clear from its Ahmedia-bashing as it has started to cleanse the system by driving out esteemed economists of different or heretic faith.

Pakistan is standing on the verge of an IMF bailout once again, which is contingent on the US nod. At length, if Pakistan decidedly heads to the IMF for aid, it won’t be for the first time. The nation has had 12 loan programmes with the IMF since the late 1980s and may seek between $ 10 billion-15 billion from the Washington-based lender in the upcoming months, according to a researcher (Michael Kugelman, Wilson Centre). The loan typically comes with conditions such as reining in fiscal deficits and tighter monetary policy-prescriptions. According to a newspaper (Michael Kugelman, Wilson Centre)), Pakistan’s Central Bank has already increased interest rates three times last year to 7.5 per cent. But here the question that arises is: how far would the Trump Administration be generous to the new Pak regime especially when last year the Trump Administration’s South Asia policy had vehemently denounced Pakistan in harsh language for ditching the US in the ‘global war on terror’. Following this Pakistan fell from the position that it hitherto enjoyed as a clientele state of US patronage. At that time Imran Khan was one of the leading protagonists who categorically exploited the issue to score politically and took the US to task for its harsh approach to Pakistan despite the latter’s commit-ment to support the US’ persistent engagement in the Af-Pak front.

However, Mike Pompeo’s recent meeting with the Pakistan leadership has ensured that the US won’t veto the probable grant of such IMF loans to Pakistan. But the critical attitude of the present US regime to Pakistan might still pose a veritable thorn insofar as the US would invariably seek to ensure that such fund is by no means siphoned off to China to strengthen latter’s hand against the US. This bears out Mohammed Ali Hussain’s prophesy that the ‘IMF bail will not be that easy this time around’. On the contrary, it seems reasonable that the probable grounds of rejection by the IMF are already at hand: a lot of structural reforms were delayed or not done last three years.

Some points are crucial in this connection. China and Pakistan have over the decades tended to view their relationship as a means to countering India, an increasingly important strategic partner in what the Trump Adminis-tration refers to as “the Indo-Pacific region’’. Second, Washington is also concerned that Beijing is not sufficiently focused on the destabilising risks posed by Pakistan’s use of militant proxies in the region, particularly toward India and Afganistan. (Foreign affairs)

It’s also a matter of apprehension that China is fast making deep ingress into the Pakistani belly via US $ 62 billion CPEC. It’s a widely shared talk that the CPEC might turn out to be a veritable debt trap, a stranglehold for Pakistan in future. This is a particular possibility because as the US is oscillating away from Pakistan and as the Pakistani economy is waning to stagnation, it is all set to bank on China and Russia. If we further zero down, it will be obvious that Pakistan and China have crafted a sort of symbiotic relationship based on strategic understanding in South Asia, rather than with Russia, which could be Pakistan’s new found bargaining chip, of late, to put pressure on India. First, bubbles of resistance have already started to crystallise as the new government under the populist Prime Minister Imran Khan could perceive the ominous signals with the rising debt levels to be further compounded by or under the effect of the signature Chinese projects. According to Drazen Jorgic (of UK, Reuters), “The cooling of enthusiasm for China’s investment mirrors the unease of incoming governments in Sri Lanka, Malaysia and Maldives, where new adminis-trations have come to power wary of Chinese deals struck by their predecessors.” Hence, it was obvious for Pakistan’s new government also to seek to review the BRI contracts lest those deals were badly negotiated or overtly biased in favour of China. This, however, does not indicate contemplating any hasty or radical step towards backtracking from Pakistan’s commitment to Chinese investment but surely it calls for Pakistan’s economic rationality ‘to push harder on price and affordability, while re-orienting CPEC to focus on projects for social development in line with Khan’s election agenda’. Secondly, when we talk about projects, specially the energy projects, the equity component, which is about 20 per cent, and 80 per cent debt component borrowed from the bank are both undertaken by the Chinese investors. So the debt and equity components are not being contributed from the Pakistani side or the Pakistan Government. Thus the 35 billion dollar energy investment which was an important stimulus for growth is being brought by the Chinese investors. All that the Pakistan Government does to incentivise Chinese invest-ments is to give them a sovereign guarantee that we would purchase this electricity and power for the next 25 years via the power purchase agreement. Brahma Chellany, in his recent take, has also exposed how under the predatory Belt Road Initiative unfair project deals have been imposed by China on its client Pakistan. Besides, according to Andrew Small, a senior Transatlantic Fellow with the Asia programme at the German Marshall Fund of the US, the raging fumes of the trade war between the US and China, which he describes as the ‘new Cold War’, might hamper the CPEC indirectly by influencing the US attitude to Pakistan since the US is viewing Pakistan as China’s close ally. So, in all likelihood, this is going to be an additional straining factor for Pakistan. (

All these point to stormy clouds hovering over the Pakistani sky with its economy steadily dipping down and the new regime showing signs of nervousness to get rid of the growing unease.

One implication of the current economic situation in Pakistan could reasonably be admission of plausible failure but at the same time it could be taken to represent a signal that everybody be ready for the slump, which might pave the way for a national consensus to reach a broad agreement on newer policies to be adopted for allocation of resources across boards and re-evaluate projects which are obtrusively extravagant or politically motivated. Alter-natively, it could be a well-calibrated ploy devised by Imran’s populist regime to further consolidate an already centralised approach to economic management, to introduce a certain line of thinking that facilitates the private sector through foreign funds rather than painstaking efforts to increase internal resources.

Already what we are witnessing is a series of flimsy measures with highly emotive inputs, a sort of populist stance like the new Prime Minister refusing to enjoy costly official amenities, sale of luxury government cars, embargo on all bureaucrats travelling by business class etc. All this seems to be short-term measures aimed at restricting the demand side of the economy which could pull the supply side and thereby the net effect could be to obtain some savings for the ‘cash-starved government’, but which would certainly be inadequate, and not leveraging persistent growth at all. Hence, it would not work for long, unless the state itself takes up vigorous strategies for industrial expansion as well as for the proliferation of the tertiary sector to create opening in the job market for the educated youngsters. But when the economy falters to the point of bailout it leaves little room to enable the state to act autonomously in favour of state-led industrialisation, not to speak of “Islamic socialism” but rather the current tendencies might accelerate the pace of neo-liberal policies dictated by the West with newer conditionalities attached.

Already Pakistan is bent on devaluing its currency in the wake of the soaring balance of payment crisis. According to a report published recently, “The successive rounds of currency devaluation that saw the rupee slip from Rs 105 to a dollar to Rs 122 in 11 months have also reinforced suggestions that Pakistan’s $ 300 billion economy is on the brink of a meltdown.” ( accessed on October 1, 2018) So, is it merely a BOP crisis? Note that in a press conference “caretaker Finance Minister of Pakistan Shamshad Aktar referred to four problems facing the economy: widening current account deficit, growing budget deficit, increasing debt and loss-making public sector enterprises. But she also pointed out that the real economic sector was strong...” ( In fact, to get the overall picture, this has to be read along with the observation made by Shahid Javed Burki and Adnan Naseemullah that “the lack of sustained domestic resource mobilisation and investment means that Pakistan’s economy relies on foreign inflows, in terms of official aid, emergency loans and remittances to keep the economy afloat while maintaining its external obligations”.

Last but not the least is a lurking surmise that perhaps Pakistan’s deep state needs to sustain the rigmarole of terror and the narrative so that it could be strategically successful to continue to draw external aid to tide over its economic impasse from time to time. No doubt that “external support is both fickle and politically costly” but the resilient nature of the Pakistani state with powerful groups staging xenophobic agitations have mediated resistance while seeking to reconcile with foreign dependence lest the regional ramifications of state failure turns into a larger threat to the international community.


1. India’s Foreign Policy—Coping with the Changing World, Muchkund Dubey, 2016, OB.

2. Pakistan at the crossroads—Domestic Dynamics and External Pressures by Christophe Jaffrelot (ed.), Penguin Random House India 2017.

3. Privatisation and the Crisis of Agriculture—The case for Pakistan by Ahmed Munir, Andrew Davidson, 2017, Routledge.

4. website—

5. website—

6. website—

7. website—

8. website—

9. website—

10. website—

11. website—

12. The Nation—2018

13. Foreign Affairs—2018

Dr Gouri Sankar Nag is an Associate Professor, Department of Political Science, Sidho-Kanho-Birsha University, Purulia (West Bengal) and Arpan Bhattacharya is an Assistant Professor, Department of Political Science, Ramananda College, Bishnupur (West Bengal).

Notice: The print edition of Mainstream Weekly is now discontinued & only an online edition is appearing. No subscriptions are being accepted