A clip of Shabbar Zaidi, Pakistan’s former chairman of Federal Board of Revenue (FBR) calling the nation bankrupt in a speech he gave at Hamdard University recently went viral on Twitter and other platforms, for which Zaidi received heavy backlash. “People like Shabbar Zaidi are ones who neither do something nor allow others to do anything,” said Pakistan Tehreek-e-Insaf (PTI) Senator Faisal Vadwa to ARY News. Soon after, Zaidi tweeted that his statement had been ‘cherry-picked’ by the media from a much longer speech in which he also provided solutions to Pakistan’s insolvency, adding that he stands by his statement nonetheless.
Long prior to this, economists have been poking hole after hole in the State Bank of Pakistan (SBP) and the PTI government’s vague and falsely optimistic assurances regarding Pakistan’s economic affairs. In just the 3 years under the Imran Khan government, the country’s external debt has nearly doubled, with SBP figures showing a current account deficit uncomfortably sitting at 4.7 percent, much higher than the targeted 2-3 percent.
The SBP has largely attributed the country’s back-breaking debt to food and cotton imports, which would have been solved in part by importing these essential commodities for cheaper from India, as was decided by the Economic Coordination Committee (ECC). However, political strain from Kashmir related animus saw this fall through and indefinitely deferred.
In visualizing the debt iceberg of Pakistan, one will quickly see that the current India- Pakistan relations influence just the tip of the tip. Pakistan’s Federal Cabinet approved a 3 billion dollar loan package from The Saudi Fund for Development, which includes a $1.2 billion oil facility on deferred payments. The package was intended to support Pakistan’s forex reserves. Since 1998, Saudi Arabia has made several huge deposits to the SBP and similar oil facilities on deferred payments. The deal comes with some tough conditions as in the case of default, Pakistan will have to repay the loan within a 72 hour notice from Saudi.
An article written by Zaidi was published on Wednesday, following up the media storm, delineating his aforementioned solutions. So far, he has tackled the import aspect of Pakistani economy. One of his main points was surrounding the country’s oil and coal imports. As he pointed out, there has been ‘no substantial development’ in hydroelectric power.
Additionally, there has been a failure in mandating the curbing of consumption and recommending energy conservation across the nation. Now, with the rapid devaluation of the Pakistani Rupee (PKR), fuel prices are the highest they have been in over 70 years, and the financial and environmental costs of Pakistan’s increasingly gargantuan energy imports only add to the mountain of public debt. This is a direct consequence of successive governments failing to implement any structural changes to the energy sector of the country, and is just one of many unmet conditions that resulted in the International Monetary Fund’s (IMF) rejection of Pakistan’s borrowing requests—and why Saudi Arabia even had to come in with a bailout.
One year ago, Pakistan received financial assistance from China in order to repay Saudi Arabia for a $2 billion loan. China has become notorious for covertly lending to smaller nations in financial jeopardy under confidential terms, to the extent that its international loans have exceeded more than 5% of the global GDP, making it the world’s largest creditor with figures well above those of even the IMF and World Bank. This undisclosed and under- reported lending has created issues of hidden debt in scores of countries all across the world. While the China-Pakistan Economic Corridor (CPEC) is meant to help Pakistan climb out of its debt-trap, Pakistan is only one of many nations part of China’s Belt and Road Initiative (BRI) that has arguably been enslaved by China’s debt-trap diplomacy. Pakistan has been borrowing from the IMF and other entities for decades, and this unsustainable practice is largely to blame for Pakistan slowly digging itself into a debt trap. This will remain impossible to get out of if there is a continuous reliance on borrowing with high interest rates in order to repay the country’s outstanding debt.
Many will hold nations like Saudi Arabia and China accountable for their part in Pakistan’s state of bankruptcy, but a debt iceberg this colossal always has a murky base with a government obstructing any light from being shed on its questionable practices. On Wednesday, the Public Accounts Committee disclosed the information that PM Imran Khan has failed to deliver a COVID aid package as promised—the Ministry of Finance has so far allocated only 186 billion rupees from the 500 billion that was announced for pandemic relief. The PAC has openly expressed its discontentment with the government for their inadequacies in handling this matter.
Simultaneously, Imran Khan praised and congratulated officials who were involved in conducting a successful test-launch for an enhanced-range version of a cruise missile on Tuesday—this only goes to showcase the government’s skewed priorities even amid a global pandemic. Next year’s sovereign debt servicing repayment obligations will exceed the Pakistani government’s total tax collections, leaving little for revenue expenditure, like government salaries, and none for much needed developmental capital expenditure. And yet, with an exorbitant defence budget and incessantly expanding Pakistan’s nuclear arsenal in lieu of economic and human development, Pakistan’s armed forces will remain well fed and provided for, with the benefit of revenue from its own ring fenced economy, within the overall economy of an insolvent nation. It is hardly a revelation that the country is in a despondent state of bankruptcy, still grossly unwilling to effectuate transparency with its citizens and the rest of the world.
Aarushi Gupta
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