Pakistan: Drowning in debts and floods

Pakistan in the immediate past has experienced three major crises. – two of which were caused by natural hazards — the 2005 earthquake, which impacted 3.5 million people and the 2010 floods which affected more than 20 million people.

Pakistan is at a critical economic juncture. The new coalition regime of the Muslim League and Pakistan Peoples Party which is struggling to stabilize the economy is already facing the daunting task of managing a faltering economy with huge deficits.

After two years of the pandemic, the economy is in the red zone, marked by rising external debt, higher inflation, and large-scale unemployment.

The floods that occurred from the torrential monsoon deluge added fresh challenges to Shahbaz Sharif’s government in the economic crisis, which he inherited from the cricketer-turned-politician Imran Khan, who failed the nation.

The floods are not only to be blamed for climate change disaster, but it is a failure of governance on multiple levels, including deliberate neglect of Baloch, Sindhi and other ethnic and linguistic communities in Pakistan.

The devastating floods which engulfed one-third of the country have counted unofficial deaths and missing over 1500, mostly children, caused forced displacement to 33 million, and dented livelihoods.

In addition, the floods eroded a million houses and damaged around 2 million acres of crops (an estimated 45 per cent) of cultivable land in Sindh, South Punjab and Balochistan, triggering alarm bells for looming food shortage.

The floods will leave behind a trail of loss of huge livestock, the output of cotton, rice and maize crops too and also feared that the sowing of sugarcane and wheat will also take a hit.

In fact, Pakistan in the immediate past has experienced three major crises. While the nature and scale of these crises were different, two of them were caused by natural hazards — the 2005 earthquake, which impacted 3.5 million people and the 2010 floods which affected more than 20 million people.

Pakistan produces less than 1 per cent of global carbon emissions and for the past 20 years, it has ranked in the Global Climate Risk Index as among the top ten most vulnerable countries.

It could be argued that the damage caused by both disasters is the outcome of climate change as well as the politically inspired development policies of the regime in Islamabad.

The picture looks dismal of the human development index of 2021, where Pakistan plummeted to 161, which is worse than that of India (132), Bangladesh (129), and Sri Lanka (73).

Decades of neglect of Sindh and Balochistan for their defiance against Rawalpindi GHQ have irked the regime in reasonable allocation for comprehensive infrastructure development and holistic human development projects, such as investing in primary education and healthcare.

As many as 10 million Pakistanis have been pushed into poverty. An estimated 46 per cent of the population (over 80 million) was already below the poverty line, which is likely to increase due to adverse impacts of the pandemic.

The colossal loss to the economy due to devastating floods has been estimated at US$10 billion. The country’s external debts and payments make it impossible for the cash-starved government to focus on relief and rehabilitation of its affected people.

Islamabad in rapid damage control efforts, to recover from the looming economic crisis increased the prices of oil, gas, and electricity tariff. The worst scenario is drastic cuts in social expenditures have pushed millions of working-class millions into yet another struggle for survival.

In an attempt to further save from drowning, the government imposed budget cuts, withdrawal of subsidies from food, fertilisers and fuel; wage bill cuts and at a crucial moment when disadvantaged populations are in greater need of public support.

Pakistan is among the 52 countries facing a severe debt crisis. The most critical problem faced by the country’s economy is repayment and servicing of its external debt, around $38 billion to the International Monetary Fund (IMF), World Bank and other international financial institutions.

Well, the IMF has projected Pakistan’s external debt to reach $138.568 billion in 2022-23 up from $129.574 billion in 2021-22.

Central bank foreign currency reserves have fallen to nearly $10 billion, barely enough to cover a few weeks of imports.

The trajectory of debt is expected to continue to decline to 70.4 per cent of GDP by the end-fiscal year 2026, supported by a favourable interest rate-growth differential outlook, and fiscal adjustment efforts in the context of the Extended Fund Facility (EFF), a lending facility of the Fund of the IMF.

After weeks of negotiations with Islamabad in August, IMF has agreed to revive a bailout package for Pakistan to about $4.2 billion, which will relieve from the brink of a payment crisis.

Let’s not forget that Pakistan needs at least $41 billion in the next 12 months to repay debt and fund imports, according to a Bloomberg news agency report. It includes payments for $19.4 billion to the IMF, the World Bank, ADB and China.

Analysts saw the deal as crucial for Sharif’s coalition government, which came to power in April at a crucial juncture of two years of standstill during the pandemic, writes Ayaz Gul for Voice of America (VOA).

“The Agreement with the Fund [IMF] has set the stage to bring the country out of economic difficulties,” Prime Minister Shehbaz Sharif wrote in a tweet.

Earlier, in April 2020, the IMF had approved $1.4 billion in emergency financing for Pakistan under the Rapid Financing Instrument (RFI) to help the country deal with the aftermath of the Covid-19 pandemic.

Despite an appeal by the prime minister of Pakistan to the international community for comprehensive debt relief, Unfortunately, Pakistan obtained temporary debt relief worth $1.8 billion from the members of G-20 nations.

Several international anti-debt groups recommended immediate cancellation of the debt as a minimum demand since Pakistan is unable to repay its loans and these floods have worsened the condition of the country’s economy.

This demand has a legitimate legal argument based on international law, which calls for debt payment suspension on the grounds of necessity and fundamental change of circumstances, says the anti-debt groups.