Is Pakistan the Next Sri Lanka?

Hambantota, in southern Sri Lanka, was home to ousted President Gotabaya Rajapaksa after the recent crisis, until he was forced to flee the country entirely. That continues a trend of the city, and especially its strategic deepwater port, being in the news for all the wrong reasons. In 2017, when Sri Lanka struggled to pay off debt on time, it sold a 99-year lease on the port to the Chinese company that had built it for some quick cash. Many analysts and writers wrote articles pointing to Hambantota as Exhibit A in the theory that China deliberately plunges developing countries into a “department trap” by offering loans to finance extravagant infrastructure projects.

Similarly, many analysts and writers have warned that Pakistan could meet the same fate, where Chinese authorities have been heavily involved in investment projects, particularly under the China-Pakistan Economic Corridor (CPEC) since 2015. Like Hambantota In Sri Lanka, the Chinese have been heavily investing in Gwadar, the deepwater port in Pakistan’s southwestern province of Balochistan that serves as the epicenter of CPEC in Pakistan. Thus, the news about the Hambantota port set off alarm bells in the halls of power in Pakistan. Some feared that if Chinese influence grew further in Gwadar, it might follow the example of the Sri Lankan port, for all the wrong reasons.

Today, the current political and economic situation has greatly worsened in Sri Lanka, culminating in the country’s default on its debt payments. Amid shortages of essential items, Sri Lankans have erupted in mass protests. And the crisis is unlikely to be resolved any time soon, even though the protesters forced Rajapaksa to resign. He was replaced by Prime Minister Ranil Wickremesinghe, who is also unpopular with the masses and seen as a symbol of the political status quo.

Once again, Pakistan (among other developing countries) has been the subject of debate in light of the worsening situation in Sri Lanka, with questions about whether the country may fall down the same dark path.

To be sure, Pakistan also has a shaky economy, now going from bad to worse in the wake of political uncertainty. There is gross unemployment, while the rate of inflation has skyrocketed. Among other things, The News, an English national daily in Pakistan, reported recently that the value of the Pakistani rupee against the US dollar has worsened by more than 4,100 percent, from just 4.76 rupees per US dollar 50 years ago, in May 1972, to a whopping 200 rupees per dollar on May 18 2022. The depreciation of the Pakistani rupee against the US dollar continues its decline and stands at 225 to the dollar at the time of writing, further aggravating the country’s economic miseries amid dwindling oil reserves. foreign exchange.

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Like Sri Lanka, Pakistan has welcomed Chinese investment to support its ailing economy. That is why some analysts argue that heavy Chinese investment in Pakistan brought the country to the brink of economic collapse. But that narrative is an exaggeration: most of Pakistan’s problems, especially its economic problems, are the creation of its own mismanagement, lack of planning, political uncertainty and, above all, deteriorating relations with neighboring countries that they have traditionally had good relations with Pakistan.

One such example is the recent government of former Prime Minister Imran Khan, who came to power in 2018, reportedly backed by a powerful security system. During his tenure, which ended abruptly in April 2022 through a no-confidence motion in parliament, Pakistan’s relations with Saudi Arabia and Turkey deteriorated. Traditionally close friends of Pakistan, these two countries have previously supported Pakistan in times of need. Meanwhile, China, a staunch friend of Pakistan, remained dissatisfied with the progress of CPEC’s projects, which slowed under the Khan government. Thus, when Pakistan’s economic crisis began to take its toll, the friends of Islamabad were less willing than usual to provide a bailout.

Perhaps most notably, Pakistan’s ties with the United States have plummeted. Washington remained furious over Pakistan’s role in supporting the Taliban in Afghanistan, to the point that US President Joe Biden did not call Khan after he became president. The downward slide did not stop there. Khan went a step further and visited Russia in February 2022, a move meant to anger the US, it turned out to be the same day Moscow began its invasion of Ukraine.

When he was ousted by a no-confidence motion in parliament, Khan further blamed the United States for his downfall. In the media and at public meetings, he claimed he was the target of an American conspiracy to remove him from office. Khan’s strategy was to whip up anti-American sentiments in Pakistan to win votes and woo his political opponents, and it worked. In recent by-elections in Punjab, the country’s most populous province, his party won a majority of seats, thanks to his fiery speeches and rising inflation that started during his own rule.

Above all, Pakistan’s powerful security establishment has expanded its role and influence in all sectors, including politics. It is common knowledge in Pakistan that governments come and go with the approval of the military. But the heavy hand of the security establishment has created a deadlock in the country, preventing it from moving forward on the path of development. Most of Pakistan’s problems, including its economic and political uncertainty, stem from this issue. For example, Pakistan’s security-focused approach to nearby terrorist groups pushed the country onto the Financial Action Task Force (FATF) gray list, with economic consequences. Successive governments have struggled to get Islamabad off the gray list (and stay out of it).

On the other hand, the new government in Islamabad, led by Prime Minister Shehbaz Sharif, is facing innumerable problems, starting with an economic crisis. In the wake of the prevailing economic problems in Pakistan, the Sharif government is negotiating with the International Monetary Fund (IMF) to receive $2 billion in relief funds. However, if the prevailing political uncertainty increases further, it will be quite difficult to get this package from the IMF. In order to secure a loan package, Pakistan is reported to have taken various steps to cut spending, raise energy prices and improve tax collection, as required by the IMF. But these moves are unpopular with the public and could lead to another change of government this fall, as elections near.

Furthermore, Pakistan has a long history of turning to the IMF when economic challenges become dire. His repeated requests are proof that this is not a long-term solution to Pakistan’s economic problems.

As the economic crisis continues to unfold, the parallels with Sri Lanka become alarming. Like Sri Lanka, Pakistan faces a growing shortage of foreign exchange reserves, limiting its ability to import essential items such as food and fuel. And like Sri Lanka, too, that economic turmoil is assigned fertile ground for political contestation. If the economic situation bottoms out, Pakistan could also spiral into mass protests and a leadership vacuum.

Prominent Pakistani columnist Zahid Hussain is one of the voices warning that Pakistan must take action now to avoid the fate of Sri Lanka. “What led to the economic collapse of Sri Lanka is obvious. Crippled by a shortage of foreign exchange, the country has been unable to pay for imports even of basic goods such as fuel. In fact, the crisis had been building up for many years as the country accumulated external debts with the a sum of $51 billion,” wrote for Dawna Pakistani newspaper.

“…There are many developing countries, including Pakistan, that are facing a similar situation. We may not be in Sri Lanka’s shoes yet, but we are not far away as there are some comparable symptoms.”

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Unfortunately, grounded realities tell us that Pakistan is gradually and slowly slipping into terrible economic and political uncertainty. If Pakistan’s politicians continue to ignore the warning signs, as they always have in the past, things may lead to a crisis similar to the one unfolding in Sri Lanka. It is time for Pakistan to swallow the bitter pill of harsh economic reforms before it is too late.

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