Pakistan is struggling with its worst economic crisis in decades and its lowest foreign exchange reserves in 10 years, which are only enough to pay for less than three weeks’ worth of imports. Meanwhile, fiscal adjustments demanded by the IMF are fueling decades-high inflation. The country’s international bonds extended their decline, with the 2027 dollar-denominated bonds dropping more than 1.2 cents in the dollar to trade just over 40 cents. China is already Pakistan’s single largest creditor, with its commercial banks holding about 30% of its external debt. China has become Pakistan’s big brother, with its own motives. China has provided economic, technical, and military assistance to Pakistan; both sides regard each other as close strategic allies. Mutual relations have evolved from China’s initial policy of neutrality to an extensive partnership driven primarily by Pakistan’s strategic importance.
At a time when Pakistan is in a deep economic crisis and has gone bankrupt, it will receive a new USD 700 million loan from China. From staring at bankruptcy to dealing with a food crisis, all-time high fuel prices, and all-time low forex reserves, Pakistan’s crisis is going from bad to worse. But even at such an economically crucial time, the crisis-hit country imported 2,200 luxury vehicles even as shipments of essential consumer goods remained stuck at ports, according to a report by Pakistan-based newspaper Dawn.
Pakistan is grappling with a foreign exchange crisis, which has halted almost all imports. An IMF team is reportedly scheduled to visit the country this week to talk about an urgent bailout package. The report said that Pakistan imported 164 luxury electric vehicles between July and December of 2022. Pakistan imported nearly 1,990 such vehicles in the last six months. On the other hand, over 5,000 containers of consumer and industrial goods were held up at ports. The import of these vehicles is allowed only for overseas Pakistanis, but this facility is being misused by some importers. Pakistan’s foreign reserves have recently fallen to USD 3.7 billion, a record low.
Pakistan is grappling with inflation, the aftermath of the disastrous flooding in 2022, and an acute energy shortage. It only has enough for a few weeks of imports. In response to the crisis, Pakistan’s state bank began this month refusing to issue letters of credit for all imports, barring food and medical supplies. Pakistan has already declared bankruptcy, and there are looming fears that the cash-strapped nation may not be able to get a USD 7 billion bailout from the International Monetary Fund (IMF). At a time when the country is in a deep economic crisis and has gone bankrupt, Pakistan will this week receive a new USD 700 million loan from China. The USD 700 million credit facility, made through the state-owned China Development Bank, will boost Pakistan’s foreign exchange reserves by about 20% and comes as the country is thrashing out a deal with the International Monetary Fund (IMF) to unlock funds from a USD 6.5 billion bailout.
The recently announced USD 45 billion CPEC is a case in point. The entire project will be built by the Chinese with Chinese machines, equipment, materials, labor, and expertise; the entire multiplier effect will go to Chinese enterprises. And the pricing is designed to reduce Pakistan to a skeleton. For instance, the solar power tariff has been locked in for 25 years at USD 0.14 a unit, more than twice what countries like India are paying and even more than what OECD countries pay. China will recover its investment in less than 30 months and suck Pakistan’s blood for the next 22–1/2 years while crippling its economy with exorbitantly priced electricity that will make its businesses a wheel-chair case.
They had a stronger economy than India for the first three decades. For years, Pakistan told India how God had given them the advantage of encircling India and not allowing India to freely trade through Pakistan as a reward for worshiping the right god. However, they totally forgot that God had given India their water, which we never announced to them as an act of God’s punishment for them. Instead, every successive government tried to remain silent and wait till Pakistanis realized by themselves that India is so magnanimous that they never speak of the advantages they have over Pakistan as an act of God.
Perhaps now Pakistan is slowly waking up to the fact that water is more important than land, and India cannot freely reward Pakistan for being a bad neighbor. The biggest economic blockade that would affect Pakistan would be the Indus water, as most of Pakistan is still reliant on agriculture, and even a 25% reduction in water will affect its economy more than any direct sanction will. The other major effect on its economy would be Pakistan’s own image as a terrorist-infested land, which does not allow investors to look at Pakistan seriously as a great destination for investment. India’s constant pressure in Kashmir also plays a role in bankrupting Pakistan, as they have to spend the same amount as India to keep the war going.
Either way, Pakistan’s military does not care if the economy does not grow; they are more interested in taking commission on weapons purchases and providing aid in the name of fighting terrorism. Kashmir is merely a money-spinning racket for the Pakistan army, and I think that it is a major economic problem for Pakistan. The Pakistani establishment—bureaucracy and politicians—are to blame for the current economic mess as the law and Constitution are not followed in Pakistan.
The most serious issues are a lack of goods and services, inflation and a decline in currency value, and difficulty attracting foreign investment. The consequences for the citizens include increased costs of living and decreased access to basic services. increase in death as it will cause shortages in life-saving medicine. Frequent changes in regime and an increase in terrorism will never allow Pakistan to settle peacefully.