Debt, Disaster, and Surging Terrorism: Pakistan in Crisis

Activists shout slogans and carry placards during a protest in Lahore after a terrorist attack on police headquarters in Peshawar, Pakistan's sixth most populous city, on February 1, 2023. Arif Ali/AFP via Getty Images)

News Analysis

Pakistan is going through an extraordinary period of crisis as its administrators jostle to rescue its debt-ridden economy amidst rising political uncertainties and surging terrorist threats. While its people wrestle with hunger and increasing unemployment, opaque loans from its closest ally, China, are complicating bailout negotiations with the International Monetary Fund (IMF).

“Pakistan is facing one of its worst economic crises at a time of political instability and problematic security,” Aparna Pande, a research fellow at the Washington, D.C.-based Hudson Institute and author of two books on Pakistan, told The Epoch Times.

The country’s government held ten days of intensive talks with the IMF from Jan. 31 to Feb. 9, but could not reach a deal. While the talks resumed on Feb. 14, Dawn, a leading national newspaper, quoted insiders, saying that the IMF “wants Pakistan to start work on agreed measures before releasing [the] next tranche.”

Pande said the ongoing and continually prolonged negotiations with the IMF are a symptom of the crisis. "This is Pakistan’s 23rd bailout from the IMF. The IMF is a lender of last resort—like the ICU—and if you go to the ICU 23 times there are underlying issues that need resolution,” she said.

In 2022, the Pakistani economy grew by only two percent, while its foreign reserves held by its central bank currently stand at $3.1 billion: not enough to cover one month of exports.

Its critically low U.S. dollar reserves have forced it to ban imports of essential food and medicine until the IMF offers it a bailout. Meanwhile, Pakistani industries such as steel, textiles, and pharmaceuticals are almost dysfunctional, with many businesses closing down. Experts fear a massive, never-before-seen rise in poverty and unemployment.

“Pakistan is on the verge of economic default and at the same time facing one of the worst surges in Islamist terrorism. Young professionals are leaving the country in record numbers. Those who are staying behind are pessimistic about the future of Pakistan. It’s a terrible time for 220 million Pakistanis,” Adnan Aamir, a journalist working in Pakistan, told The Epoch Times in an email.

Aggravating the crisis are natural disasters that have wreaked havoc. Extensive floods in 2022 not only killed 1,700 people but decimated agriculture and livestock and wrecked over a million homes, 24,000 schools, and 1,500 public health facilities across 72 districts of the country. Fifteen million people needed flood assistance, while 9 million people were pushed into monetary poverty by the floods, according to UNICEF.

The textile industry, which contributes over 60 percent to Pakistan’s total exports, suffered massively due to the floods, with a loss of almost 40 percent of the total cotton crop, while overall agricultural output went down by 10–15 percent, according to Business Recorder, a major media conglomerate in Pakistan.

Aamir, in a recent story for Nikkei Asia, wrote that the overall crisis has accelerated “brain drain” from the country. The latest government figures show that 832,339 Pakistanis went overseas to work in 2022,  the third-highest number ever.

Activists of the Pakistan Markazi Muslim League (PMML) carry placards and chant anti-government slogans during a protest against the inflation and price hike in commodity items and oil products, in Karachi, on Feb. 17, 2023. ( Asif Hassan/AFP via Getty Images)

Years of Bad Policies

Critics blame Pakistan’s policymakers for the country’s economic ordeal and blame certain prominent politicians for fanning the crisis for the sake of votes.

Ahmed Quraishi, a veteran Pakistani journalist, feels that the current situation reflects years of bad economic policies. He thinks the country’s leaders failed to build on its strengths and instead adopted a model of “perpetually” living off international loans.

Quraishi attributes the current stalemate with the IMF to the regime of former Pakistani prime minister Imran Khan, whose government lost to a parliamentary no-confidence vote in April of last year.

‘The latest troubles with international financial institutions stem from former Prime Minister Imran Khan’s ill-advised move to renege on his IMF austerity commitments, thereby damaging Pakistan’s future negotiation position,” said Quraishi.

Aamir said reforms have been almost non-existent in Pakistan’s “inherently flawed” economy. Global allies no longer trust the country for new loans because they did not see any reforms or economic improvement after previous loans.

“Therefore, the IMF is the final option for Pakistan,” said Aamir. “The August 2022 bailout was just one tranche just like the current one. Even if Pakistan gets this latest tranche from the IMF it can only save the economy from default for the next six months. This situation will not change without fundamental changes in how Pakistan is governed.”

Fanning the Crisis

Adding to the economic woes is increased political instability, which critics allege Khan is using for his political gains. Khan’s party was ruling in two provinces—Punjab and Khyber Pakhtunkhwa—and the elected assemblies of both those provinces were dissolved in January.

The dissolution was thought to be pushed by Khan, who has been demanding early elections in the country since he was ousted from power last year.

“Imran Khan used the dissolution of assemblies as a political card to force early elections in the country,” said Aamir.

Pakistan’s election panel has already announced that the polls in the two elections will be held in April. That hasn’t gone well with Khan, who told foreign journalists on Wednesday that his political party will keep pushing for early elections and members of his party will take to the streets.

“Pakistan will go bankrupt if the [current] government fails to hold early elections,” said Khan, blaming the current economic crisis on his removal from power. “Only that will ensure political stability.”

Quraishi said Khan is power-hungry and his protests are known to be campaigns to placate Pakistan’s voters.

Supporters of Pakistan's former prime minister Imran Khan, shout slogans during a protest against an assassination attempt on Khan, on Nov. 6, 2022. (Rizwan Tabassum/AFP via Getty Images)

Chinese Loans Raise Concerns

Pakistani sources haven’t ascribed the current crisis to China—Pakistan’s largest creditor. However, critics say drawn-out negotiations with the IMF are due to China’s less-than-transparent loan dealings.

“China has always preferred to be opaque about its loans to any country, including those under BRI. The opacity of these loans has created problems for many countries in South Asia,“ said Pande, the author of ”Explaining Pakistan’s Foreign Policy: Escaping India.“

Pande said the IMF and other financial institutions want to know the details of Chinese loans to Pakistan before they offer any more bailout loans.

On Feb. 16, American foreign policy adviser Derek Chollet, who led a delegation visit to Pakistan last week, shared concerns about the country’s Chinese debt.

“We have been very clear about our concerns, not just here in Pakistan, but elsewhere all around the world about Chinese debt, or debt owed to China,” Chollet told reporters.

Last year, Bloomberg reported that Pakistan owes 30 percent of its foreign debt to China. That is three times more than what the nation owes to the IMF and is more than both World Bank and Asian Development Bank funds combined, Bloomberg said, citing an IMF report. Much of this debt comes under the China–Pakistan Economic Corridor Project (CPEC), a flagship Belt and Road Initiative (BRI) project.

Kickbacks and Corrupt Dealings

Pande said that China’s reluctance to share detailed information about its loans to Pakistan likely means that these loans include “kickbacks to local elite, corrupt dealings, and certain conditions it would not want the world to know about.”

According to a report by current affairs magazine The Diplomat, a government committee set up in 2019 found discrepancies worth $625 million (100 billion Pakistani rupees) in the independent power-generating sector. At least a third of it related to Chinese projects. The report also pointed fingers at Pakistan’s military establishment and its nexus with the Chinese.

Aamir said that although the Pakistani government has a favorable opinion of China, the government has come to realize the country has fallen prey to China’s debt trap.

“However, they still need Chinese money and its diplomatic support from the UN and other bodies. Therefore, they can’t divorce economic engagement with the Chinese even though they know it’s toxic for Pakistan,” he said.

Betting on Pakistan’s Army

Madhav Nalapat, director of geopolitics at India’s Manipal University, told The Epoch Times that China has fostered its relationship with Pakistan’s powerful military because it believes the army controls the country.

“The Chinese have made a very big bet on Pakistan’s army. China has been supporting not the people of Pakistan or the state of Pakistan. They have been fully backing the Pakistan military,” said Nalapat, adding that in the current situation of increased threats, in order to protect China’s investments at CPEC, more and more of its security apparatus is being established inside Pakistan.

“In my view finally, if they want to protect their investment, there is something they will have more and more—more Chinese soldiers and security people. And paramilitary is coming in civilian clothes—more and more,” he said.

The Epoch Times couldn’t independently verify Nalapat’s claims about the presence of the Chinese military in civilian clothes inside Pakistan.

Aamir, said, however, “The Chinese asked for permission to bring their security, which [the] Pakistani government denied.”

In late 2021, Indian media reported the presence of Chinese troops on the disputed India–Pakistan border. A report in The Economic Times described People’s Liberation Army (PLA) troops surveying villages and military posts.

In August of 2021, China’s state-run People’s Daily Online reported that Pakistan’s military “warmly” celebrated PLA Day, and called the PLA and Pakistani Army “brothers in arms.”

Paramilitary soldiers leave a police compound after taking control of a building following an attack by Pakistani Taliban fighters in Karachi on Feb. 17, 2023. (Asif Hassan/AFP via Getty Images)

Rising Terrorism

The Taliban’s return to power in Afghanistan in 2021 had an adverse impact on Pakistan’s national security. The anti-Pakistan insurgent group Tehreek-e-Taliban Pakistan (TTP), also known as the Pakistani Taliban, has launched fresh attacks during the financial crisis.

The latest happened on Feb. 17 at the office of the inspector general of police in Karachi. Seven people, including three militants, were killed and 18 people were injured. Another blast on a train on Feb. 16 killed two people and injured several.  However, the deadliest attack occurred during prayers in a mosque in Peshawar on Jan. 30, killing 103 and injuring 200.

January was also the deadliest month for terrorism in five years.

During the past three months, the Pakistani Taliban and its members have conducted 160 attacks, killing hundreds, according to a recent report by the International Forum for Rights and Security, a Toronto-based think tank.

Nalapat said that younger elements of the Taliban have “turned against” Pakistan.

China Should Take Responsibility

Nalapat suggests that China should come forward to help Pakistan resolve its crisis. China, he said, is responsible for boosting the Pakistani army, the lapse in Pakistan’s relations with the United States, and the complete stalemate with India.

“China should write off the entire debt Pakistan owes it and give it $100 billion for civilian use only. There should be UN monitoring to make sure it’s only [used for] civilian purposes,” said Nalapat.

This article has been updated to reflect that Pakistan’s foreign exchange reserves held by its central bank fell to $3.1 billion, down 16.1 percent from December, according to a February report from Reuters.