At present, Pakistan’s current deficit stands at $14 Billion, over five per cent of GDP and its foreign exchange reserves have shrunken to $9.6 billion, enough to cover only two months of imports
Sumera B Reshi
Here goes an adage, “Better to go to bed hungry than to wake up in debt.” But can Pakistan afford to go to bed hungry is a very intricate question to answer?
Since 2017, Pakistan is in adversity. The NAB’s cracked down on the democratically elected government over corruption, followed by political and internal security issues in the country since it became the US ally in 2001. And from its inception, Pakistan has witnessed many upheavals politically and economically.
The country inherited a dominant army and corrupt politicians. However, now Nawaz and Zardari are gone but their tenure pushed Pakistan into an economic catastrophe.
In 2018, Trump announced aid suspension to Pakistan at a moment when Pakistan faces its most precarious economic cataclysm.
Since 2015, the economic growth experienced a sharp decline. At present, Pakistan’s current deficit stands at $14 billion, over five per cent of GDP and its foreign exchange reserves have shrunken to $9.6 billion, enough to cover only two months of imports, according to Shane Mason, a Senior Market Analyst with Avascent Analytics in Washington, DC.
Today, Pakistan is in disarray. Pakistan is in search of $12 billion foreign loans and aid to avoid default on international debt obligations, as the country is required to return $11.7 billion in loans to foreign countries.
Whilst hard times, Saudi Arabia announced $3 billion in foreign currency support for a year and a further loan worth up to $ 3 billion in deferred payments for oil imports to Pakistan. The announcement came as a respite for Pakistan.
Pakistan and Saudi Arabia are each other’s wild cards. Each is the other’s out-of-region game-changer, a factor that must play into the calculations of all other players in the Middle East and South Asia alike.
Nevertheless, four weeks ago, Saudi Arabia refused to lend Pakistan any financial support and it said if the Kingdom provides any monetary support then there will be certain serious conditions as per a report carried out by the Diplomat Magazine, dated 30.10.2018.
Then how and what has changed during the past few weeks so that Islamabad has not only been granted $6 billion from the Kingdom but — according to Pakistan’s Foreign Office — there are no conditions attached with the financial support? Firstly, in current chaotic economic conditions, Pakistan turned to Saudi for the monetary help.
On the contrary, Riyadh had no interest in Islamabad’s request without laying down its own conditions, which apparently Pakistan’s leadership find harmful for its national interests.
It was reported that a few weeks ago, in exchange for its monetary support, Riyadh asked for Islamabad’s military support to help Saudi Arabia in its military campaign in Yemen.
Moreover, Riyadh also showed interested in building two major oil refineries in Gwadar, next to Iran’s border, which the former would virtually operate without any intervention from the Pakistani government.
Secondly, some experts and analysts firmly believe that the Saudi’s lend the money to clean their own hands. At present, Saudi Arabia is facing massive resentment from the West over the brutal murder of the prominent journalist, Jamal Khashoggi.
Even though Saudi authorities tried everything to hush up the matter and to get out of this fishy affair scot free, yet world seek answers from Saudi authorities over Khashoggi’s murder in Saudi Consulate in Turkey.
Rather Saudi Arabia got ensnared in its own trap. It tried to convince Uncle Sam and his right-hand man Jared Khusher besides Tayyib Erdogan et al, yet MBS’s image as a liberal and reformer is under the scanner. So to put a positive and immaculate image, MBS tried something else and that was the Riyadh investment conference in October this year.
However, most of the world leaders boycott the investment conference, Khan didn’t pull out of the conference called the Future Investment Initiative, touted as “Davos in the desert”.
Saudi Arabia came to the rescue of Pakistan with an overall $6 billion aid when Saudi royals are facing pressure from around the globe over the murder of Khashoggi. Pakistani Prime Minister Imran Khan. However, chose to remain silent on this issue.
In fact, before his departure to Saudi Arabia, Khan said that since Pakistan needs money from the Saudis, it cannot afford to snub them on this issue.
The Saudi aid has eased some of the tension from Imran Khan’s chest. He has been applauded for securing the loan but this surely is not an act of Saudi generosity rather a coincidence of Khashoggi’s planned murder which prompted Riyadh to come to the rescue of Pakistan.
World leaders and investors have almost unanimously shown their disapproval of working with the Saudis.
The country has become a liability, especially for businesses and investors who rely on credibility.
Initially, Christine Lagarde, Managing Director and the Chairwoman of the IMF intended to attend the conference, but after Khashoggi’s murder, she declined to attend the conference.
Jamie Dimon of J.P. Morgan Chase also pulled out despite 85 years of business relations with the Saudis. Bill Ford of Ford motors pulled out, too. He was hoping to boost sales in the market that is due to expand since Saudi women can now drive.
It is believed that in case the global retaliation against the Saudis increases, the country could even face sanctions from the international community.
This conference was positioned as a core platform to bring in new contracts for its economic plans.
Saudi authorities have been trying to woo investors to contain the economic crises it might slide into, possibly irrevocably.
The Saudi government might now pursue forcing more debt into the country, though at a much higher cost.
As Khashoggi’s murder received the attention of international media, things have gotten out of the control of Riyadh. To cover the planned murder of Jamal Khashoggi, Saudis have been trying to bribe their way out of the mess.
According to the New York Times, a close aide to Turkish President, Tayyib Erdogan, said that Saudi Prince Faisal offered financial aid and investments besides an end to a Saudi embargo on Qatar if Turkey would drop the Khashoggi case and which President Erdogan calls ‘a political bribe.’
Therefore, experts believe that giving a couple of billion dollars is by no means a gift to Pakistan rather a getaway for the Saudis. As they seek to pull in more debt, this money will, in fact, help the Saudis clean their own slate.
Currently, Riyadh is in crisis and Pakistan’s support at this juncture will be invaluable in the event of a domestic crisis where the House of Saud or its current leadership is under threat.
Pakistan has always assured the Kingdom that the country stands ready to support Riyadh’s domestic security.
Before Khashoggi’s murder, Saudi Arabia’s demands were more on the lines of the country’s foreign policy.
However, after Khashoggi’s murder, the kingdom is more concerned about its dampening support internationally and domestic anger, which may pose a serious threat to the current Saudi leadership.
And in case Saudis face sanctions, it would be horrifying for Pakistan. Khan has already risked the country’s relationship with allies like Iran and Turkey by taking this money. But sanctions on Saudi Arabia could force renewed and unsurmountable economic challenges for Pakistan.
As per Imran Khan, Pakistan would try to play the role of a mediator in the Yemen War. “I also want to share with you… we were trying to play a role in ending the Yemen war.”
That could be another possibility because Yemen is what Vietnam turned for the US.
At present, Pakistan is in a debt trap. Its economy is indeed in shambles, debt is soaring, the current-account deficit is widening, reserves are falling and the currency has been devalued multiple times since December 2017. Khan is trying hard to meet with the International Monetary Fund (IMF) about yet another aid package.
Analysts believe that the Saudi package will allow Islamabad to breathe a little easier as it seeks a critical loan from the International Monetary Fund to address its $18 billion deficit. And as per the diplomat report, ‘Pakistan’s Economic Crisis’, the year 2017 ended with a deficit of $18 billion, 5.7 per cent of GDP and the budget deficit crossed two trillion rupees.
Moreover, the government owes another trillion rupees in circular debt. Owing to huge numbers, Pakistan has few options but to go to the International Monetary Fund (IMF) for another bailout package – the 13th for the country since the 1980s. With the help of the Saudi package, Pakistan is able to seek help from the International Monetary Fund (IMF).
The IMF has not only necessitated complete transparency from Pakistan on major Chinese projects being implemented in the country under the China-Pakistan Economic Corridor (CPEC) but has also made it clear that the organization will demand tough regulations from Pakistan domestically.
On the other hand, Washington’s policy of putting pressure on Pakistan has also found its way into the official language of the IMF demands.
Moreover, the amount of money which Pakistan needs is not likely to come from the IMF alone.
But changes in Saudi Arabia over the past two weeks may have increased Pakistan’s strategic significance for the Kingdom domestically.
The murder of a Saudi journalist, Jamal Khashoggi, inside the Saudi consulate in Turkey has brought unprecedented pressure on Riyadh over the past two weeks.
As of now, the change in Riyadh’s policy in terms of allocating Pakistan $6 billion appears to be due to the mounting international pressure on the Kingdom.
Moreover, the change in policy may have also been due to growing domestic pressure on the Saudi leadership.
In such an environment, Pakistan’s military support for the kingdom, which Riyadh would hope to have in times of a domestic crisis, means everything.
Saudi Arabia is indeed one of the few countries – China and the US being the others – that have significantly influenced Pakistan’s foreign and internal policy discourses and decisions.
But at the same time Pakistan’s strategic relationships with other states in the Middle East, particularly Iran, Egypt and Syria, have remained important and Pakistan plays a vital role in their strategic and diplomatic policies.
Pakistan’s response to the Yemeni crisis has seemingly changed the dynamics of relations and cooperation between the two countries.
Furthermore, since President Trump came into office, the relations between Pakistan and the US reached to an all-time low, followed by a depreciating rupee, and its untenable foreign exchange position, Pakistan begun reaching out to other countries for support, particularly China.
Pakistan has received over $5 billion in bilateral and commercial loans from China this fiscal year, including a $1 billion loan in early July.
In addition to the China-Pakistan Economic Corridor (CPEC) – a package of infrastructure projects in Pakistan funded by Chinese loans worth an estimated $62 billion – Pakistan has also turned to Beijing as a source of defence imports.
Over the next decade, Beijing will become the single most important arms supplier for the Pakistani military.
Besides Saudi Arabia, Pakistan is eying for the UAE financial assistance as well. According to official sources, a high-level UAE delegation was expected to arrive in Pakistan on October 26 to discuss investment opportunities, while Khan will visit China in the first week of November to seek business and investment as well as explore financial assistance. During 2017 – 18, authorities devalued the rupee multiple times and hiked interest rates the most in Asia. Reserves have plunged more than 40 per cent this year to $8.1 billion.
While the “far larger” than expected Saudi windfall won’t address all Pakistan’s needs it will “help Pakistan to negotiate a smaller loan facility from the IMF with less stringent conditions,” said Mohammed Sohail, a chief executive officer of Karachi-based brokerage Topline Securities Ltd.
Pakistan has also returned the favour by supporting Saudi Arabia in its diplomatic fight with Canada over the release of women’s rights activist Samar Badawi.
Saudi – Pakistan Relations
Saudi Arabia is a rescuer for Pakistan and both have maintained good relations with each other. Everything comes with a price tag, thus has Saudi its price tag when it comes to Pakistan.
Saudi Arabia intends to expand its ideological reach beyond the Arab world. Riyadh tries to achieve this goal globally, both through highly visible investments and by more covert means.
With great fanfare, the Saudi government builds grand mosques and endows humanitarian charities; more quietly, it spreads its Salafist doctrine by funding ideologically focused madrassas, and by paying for clerics to visit, study, or conduct pilgrimages to the Kingdom. For the Saudi royal family, Pakistan is the ultimate prize:
It has the world’s second largest population of Muslims, and, unlike first-ranked Indonesia, is constitutionally an “Islamic Republic.”
Pakistan was founded explicitly to provide a homeland for South Asian Muslims. Moreover, Pakistan has a Muslim identity as part of its national identity and mission.
How that mission is translated into practice, however, is very much up for grabs. And the Saudis would very much like to grab it.
Further, Saudi Arabia views Pakistan as a crucial component of its plan to constrain Iran. Every Saudi ruler has, as part of his official title, the designation ‘Custodian of the Two Holy Mosques’. The regime’s identity is not merely that of an oil-rich Arab nation, but also as the standard-bearer for Islam.
The most potent challenger to this identity, in both spiritual and political terms, is Iran—a nation that is also oil-rich and theocratic but is Persian rather than Arab and Shi’a rather than Sunni.
From the Saudi perspective, one of the best ways to keep Iran off-balance is to bolster a powerful Sunni rival on its eastern border.
Over the past four decades, Saudi Arab has supplied Pakistan with many billions of dollars in aid through cash, credit, and cut-rate oil.
During the 1980s, Saudi Arabia delivered perhaps half of the multi-billion-dollar stream channelled through Pakistan to the anti-Soviet mujahideen.
Pakistan considers Saudi Arabia to be a strategic partner because it has always supported Pakistan on matters of strategic interest.
The two countries’ military, diplomatic and politico-economic ties date back to the 1960s. Saudi Arabia strongly supported Pakistan in its wars with India in 1965 and 1971.
Saudis have also been supporting Pakistan’s stance on Kashmir, although more cautiously in recent years, when more emphasis was placed on Pakistan and India pursuing a peace process.
At the moment, Riyadh may have assured financial support to Pakistan but it’s unclear whether Pakistan will still have the assured money at its disposal if Saudi decides to increase its demand list in the coming months.
Pakistan will have to take some drastic measures over the next few months if the country is to get out of the current economic mess.
For now, the Saudi money can keep Pakistan’s economy on the ventilator for the next few months.
But what next and how long can Pakistan roam around with a begging bowl? Maybe Imran Khan has a better answer to this question.