A raft of economic and political issues have put Pakistan in deadlock. Former Prime Minister Imran Khan has caused conflicts and worries in the country and for other nations. Pakistan’s instability poses risks for regional stability.
The existing deadlock arises from a combination of several factors, including economic collapse, internal security concerns and the rise of extremism. All of these factors together have significantly destabilized Pakistan, nearly bringing it to a collapse.
Pakistan’s economic crisis
Political instability, unfair capitalism, financial mismanagement and the impact of a 2022 natural disaster have contributed to Pakistan’s economic crisis. The devastating flooding last year resulted in billions of dollars in damage, putting immense strain on the country’s agriculture and health sectors. It exposed Pakistan’s susceptibility to climate disasters and revealed concerning vulnerabilities in governance and economic stability.
The country’s economic model relies on foreign loans. The massive external debt obligations are putting the country at great risk of bankruptcy. Pakistan has various creditors, which fall into four categories: multilateral debt, Paris Club debt, private and commercial loans, and Chinese debt.
A large portion of Pakistan’s debt, totaling $45 billion, is owed to international organizations called multilateral institutions. Some of the main lenders are the World Bank, the Asian Development Bank and the International Monetary Fund (IMF). Pakistan also owes smaller amounts to the Islamic Development Bank and the Asian Infrastructure Investment Bank.
Despite the massive size of Pakistan’s debt, it doesn’t pose major immediate risks for the country. Repayments are made in small installments over time, from 18 to 30 years. This gives Pakistan some time to make payments. In 2022-23, Pakistan paid back a total of $4.5 billion to multilateral creditors, which accounted for one-fifth of the total debt repayment for that year.
Additionally, Pakistan owes the Paris Club $8.5 billion. The Paris Club is a group of 22 creditor countries. Pakistan’s debt is planned to be repaid over a period of 40 years and carries a low interest rate of less than 1%. Most of this debt is owed to countries like Japan, Germany, France and the United States.
Pakistan also has a substantial amount of private debt, primarily in the form of private bonds like Eurobonds and global Sukuk bonds, totaling $7.8 billion. In the previous fiscal year, Pakistan secured $2 billion through the issuance of Eurobonds with different maturity periods—5, 10, and 30 years—and interest rates ranging from 6% to 8.87%. The country currently holds foreign commercial loans amounting to nearly $7 billion. This is expected to increase to approximately $9 billion by the end of the current fiscal year. A great portion of Pakistan’s commercial loan portfolio is owed to Chinese financial institutions, as the country has paid off major non-Chinese commercial loans.
Pakistan’s Chinese debt amounts to about $27 billion, which comprises, among other things $10 billion of bilateral debt and $6.2 billion in Chinese government-provided debt to Pakistani public sector enterprises. China’s State Administration of Foreign Exchange (SAFE) has deposited $4 billion with Pakistan’s central bank. The bilateral debt has favorable terms, with a repayment period of 20 years. Alongside the debt, Pakistan has a currency swap arrangement with China.
Government shakeup
In March 2022, then-Prime Minister Imran Khan faced a no-confidence motion submitted by the opposition. Khan’s Pakistan Movement for Justice (PTI) party had 155 members and needed at least 172 lawmakers on its side to remain in power. The motion initially failed, receiving favorable votes from 161 members, but gained the votes needed to pass in another vote on April 10.
The confidence vote resulted in key figures quitting. Punjab Chief Minister Sardar Usman Buzdar, a member of PTI, presented his resignation to Khan, who rejected it. However, several PTI senior leaders supported the notion of removing Buzdar as Punjab Chief Minister since his “governance had destroyed the party’s image.”
After Buzdar’s resignation, the Housing Minister and leader of the coalition partner Pakistan Muslim League-Quaid (PML-Q), Tariq Bashir Cheema, quit the federal cabinet.
Chaudhry Pervaiz Elahi was later nominated as the next candidate for Punjab Chief Minister.
Imran Khan’s arrest
On May 9, 2023, Imran Khan was taken into custody for corruption charges. His arrest resulted in a widespread demonstration by his followers across the country. Supporters of the PTI engaged in violent behavior to protest against the arrest. The country has implemented a ban on various social media platforms, such as Twitter, Facebook and Instagram.
National Accountability Bureau officials carried out Khan’s arrest in relation to the Al-Qadir Trust case. The case involves an alleged payment of $17.5 million to Khan and his wife with the intention of legitimizing a laundered sum of money. Prosecutors alleged that real estate tycoon Malik Riaz provided land and money following the assistance of the then-Khan government in 2019. This pertained to a case involving repatriated funds from the UK investigation into Riaz.
Since being removed from office in April 2022, Khan has been confronted with a series of legal challenges. He is currently dealing with numerous legal cases, totaling over 140. The legal cases are related to various serious offenses such as terrorism, blasphemy, murder, violence and incitement to violence.
Adding fuel to the fire
Khan came into power in 2018 with the support of the Pakistani people and the military. After he was ousted in a no-confidence motion, things turned sour: Khan went from being the Army’s sweetheart to its nemesis. The military has been relentlessly targeting Imran Khan and his party. It appears that the military silently stopped supporting Khan’s coalition government. Furthermore, Khan strained Pakistan-US relations even more than they already were by alleging that Washington was behind the conspiracy to remove him from power.
According to Khan, the US wanted to replace him as prime minister and expressed its wish through the US Assistant Secretary of State for South and Central Asian Affairs, Donald Lu. Khan claimed he received an intercepted message in which Lu warned the ambassador about potential consequences for Pakistan if he wasn’t removed from his position. Later on, he accused the former Army chief general of portraying him as anti-American and the general himself as pro-American.
Khan was criticized for his visit to Russia on February 24, 2022. He was the first foreign leader to meet with President Vladimir Putin after Russian troops entered eastern Ukraine. The visit implied Pakistan’s endorsement of Russia’s actions. The two leaders discussed mutual concerns in Afghanistan, regional security cooperation and plans for a natural gas pipeline.
The visit marked a shift in South Asian geopolitics as Russia is now aiming for a more balanced regional policy between Pakistan and India. Pakistan sees Russia as a means to reduce its reliance on the US. China’s involvement further strengthens the possibility of a counter to India’s regional ambitions.
The visit raises questions about India’s strategic partnership with the US and Russia’s increasing engagement with Pakistan. These geopolitical shifts pose challenges for both India and Pakistan in managing their relationships with major powers.
Pakistan continues to face internal and external difficulties
Separatist and extremist movements, most prominently the Pakistani Taliban (TTP), have worsened the struggle for political stability in Pakistan. The TTP was established in 2007 to unify Islamist militant organizations in the northwest border region known as the Federally Administered Tribal Areas. The TTP’s main objectives include fighting Pakistan’s security forces, resisting Western forces in Afghanistan and implementing Sharia law in areas under its control.
The TTP is highly decentralized and its factions often disagree on policy, making leadership challenging. The government’s efforts to negotiate peace with the TTP failed in 2014. Consequently, the government launched the Zarb-e-Azb offensive, which displaced over a million people and cost billions of dollars. Although the operation weakened the TTP, they and other militants continue to carry out major attacks. The military is believed to support some militant proxy groups.
In 2018, Imran Khan and his election was marked by concerns over the participation of banned militant groups in the political process. The TTP targeted campaign rallies and polling places during this time.
In the same year, leadership changes within the TTP, as well as shifts in Pakistan-US relations, influenced the group’s direction. The US suspended security assistance to Pakistan due to concerns over its approach to militants. The international pressure increased as the country was placed on the Financial Action Task Force’s “grey list” for insufficient efforts to combat money laundering and terrorist financing.
In the past, Pakistan has been reluctant to cooperate with the US in fighting terrorist groups. Instead, it has supported groups like the Afghan Taliban and the Haqqani network, which are enemies of the US. Now that the Taliban has regained control of Afghanistan, Pakistan’s influence over these groups has diminished. Besides that, the TTP is gaining strength again. The TTP used to be targeted by US airstrikes, but now that they mainly operate from Afghanistan, it is harder to go after them. Even though the current TTP leadership claims not to have international ambitions, their past threats to attack the US and other countries raise concerns, especially if there is a change in leadership.
As the TTP’s strength grows and security in Pakistan worsens, this could empower other separatist movements and armed groups. These groups pose a serious challenge to Pakistan’s financially strained government. Destabilization increases the risk of militant groups spreading in the region and launching international terrorist attacks. Though complete collapse of the state is unlikely, concerns about the safety of Pakistan’s nuclear arsenal persist. Warheads could be targeted or stolen by non-state actors, a possibility that worries both US and Indian policymakers.
Pakistan is not what it could be
Overall, amidst the ongoing political turmoil in Pakistan, Imran Khan’s willingness to go to any extent to achieve power and political ambitions is striking. His actions have contributed to the current state of crisis in the nation. Moreover, an unstable Pakistan is concerning not only for the country itself but also for its neighbors.
Pakistan’s political landscape is also different from others. The army is the dominant institution that believes it can preserve national unity amid challenges. Its influence stems from upholding a corrupt political structure, exploiting the Kashmir issue for legitimacy, and skillfully administering social engineering in troubled regions. Pakistan further remains heavily reliant on external support both from the United States and China. This complexity sets Pakistan apart from other republics, democracies and sovereign states in the region and beyond.
A democratic Pakistan would have been beneficial for the region, especially India. It would have prevented the use of its territory for cross-border extremism and separatism. Respect for human rights, procedural justice and integrity would address the crisis of legitimacy within the military establishment and political leadership.
Reliance on transnational extremism, especially in Kashmir, has allowed the establishment to maintain its hold. Hence, it is essential for Kashmiris to recognize the underlying fault lines and not rely on Pakistani rhetoric of freedom and separatism. A state facing external political meddling cannot claim to be a beacon of freedom for others. A stable Pakistan is a requirement for peace in the subcontinent.
[Stephanie Verroya edited this piece.]
The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.
The post Pakistan Struggles With Economic Collapse And Extremism appeared first on Fair Observer.
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