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Pakistan eagerly await for the IMF to release $1.17 billion that the nation needs to prevent the economy from tumbling into a profound crisis. Just last month, Pakistan reached a staff-level agreement with the International Monetary Fund (IMF) to revive their stalled Extended Fund Facility - a $6 billion bailout package signed by Pakistan and the IMF in 2019.

While the resumption of the IMF loan will pave the path for Pakistan to engage with other international lenders, including the World Bank and the Asian Development Bank, it is important to recognize the cost that Pakistan must pay for its reliance on foreign lenders - namely, possibly compromising on its sovereignty and national security. Consider the following examples:

Firstly, IMF’s pressure to renegotiate terms of certain energy projects established under the China-Pakistan Economic Corridor (CPEC) will invariably have a negative impact on Islamabad’s ability to maintain an independent relationship with Beijing. As part of the CPEC, Chinese Independent Power Producers (IPPs) build power plants in Pakistan through long-term power-purchase agreements under which the Pakistani government must purchase power from them and even compensate them for idle capacity.

As of today, Pakistan has more than Rs. 340 billion worth of outstanding payments to these IPPs with many of the IPPs warning that they will be forced to suspend operations of the power plants if these payments are not made.

The IMF is concerned that Pakistan may use loan money to clear its dues to China and wants Pakistan to negotiate some form of concession - whether it entails rescheduling of the loan payment or reduction in the profit rates on the investment. There is no doubt that Pakistan’s insistence to reopen CPEC projects will irk China. Just earlier this year, Chinese officials suggested that any effort by Pakistan to renegotiate the terms of these projects “would not be in line with the spirit of CPEC as it would seriously affect the sanctity of contracts signed under CPEC framework agreement”.

In addition, the Chinese could perceive this as the West interfering in the crown jewel of the Belt and Road Initiative (BRI) and potentially setting precedent for re-negotiating BRI projects globally. This is likely to adversely impact Pakistan’s relationship with our largest strategic partner.

Secondly, in order to meet the IMF’s condition of achieving a primary budget surplus of Rs153 billion, Pakistan has had to reduce the money allocated to the military for the Armed Forces Development Program by 20% i.e. 72 Billion Rupees - directly impacting Pakistan’s national security. The army’s share in the budget is critical to national security and justified by reference to our regional threat perception. There is no question that a modern and well-equipped army is crucial for Pakistan to maintain some semblance of a strategic balance with India and to counter insurgencies and cross-border attacks from Afghanistan. This cut will inhibit that.

As noted by Defense economics analyst Fida Muhammad Khan of the Pakistan Institute of Development Economics: “The Air Force has to stay up to date, fleets need to be battle-ready, and that has a high price. These cuts will impact the JF-17 [fighter jet] program, [Pakistan Aeronautical Complex] projects and many more sophisticated weapon programs.” An unsettling trend, these demands will only increase as our dependence on foreign handouts increases.

Lastly, an indirect but severe consequence of Pakistan’s heavy reliance on the IMF for economic assistance is that it makes it difficult for Pakistan to foster and cultivate strategic and economic alliances that are solely in its national interest. While almost all countries are members of the IMF, the United States is its largest cumulative contributor at $155 billion and holds the largest voting power —giving it effective veto power over many decisions.

An example of the sway that the US holds over the IMF is reflected in Pakistan’s Army Chief reaching out to US Deputy Secretary of State Wendy Shearman earlier this month so that the IMF board approves Pakistan’s loan on an urgent basis to avert sovereign default. This dependence hampers Pakistan’s ability to pursue policies that the United States and allies strongly disapprove of – Pakistan contemplating importing crude oil from Russia to offset its energy needs, being a case in point. There is a consensus within the government that given Pakistan’s economic position, and its banking on the IMF to throw it a life jacket, it will not be wise to take any action that will provoke the United States and other Western powers that have put sanctions on Russia. Contrast this with India, which imported record crude of around 950,000 barrels per day (bpd) in June even though US officials have insisted that all countries abide by the sanctions that they have put in place on Russia.

In addition to the oil imports from Russia, India has also been able to buy Russia’s S-400 anti-missile system without facing any punitive sanctions - in fact, the US House of Representatives has passed a legislative amendment that would give India special waiver for this purchase. Senator Bob Menendez, who heads the Senate Committee on Foreign Relations, pointed out at a congressional hearing that the Indians “go buy oil from Russia. They buy the S-400 [anti-missile system]. They abstain at the United Nations [on votes criticizing Russia]” and yet they were never punished for these violations.

Frank Wisner, a former US ambassador to India, explains: “India is getting negative attention for the acquisition of oil by the US and Europe… but India has made a judgment that its national interests dictate — keeping oil prices in the best position that it can is vital for domestic stability and economic interests.”

India’s economic independence enables it to make judgments “that its national interests dictate”. Pakistan on the other hand, is in the shackles of foreign debt and dependence, and its adverse impact on our national security is quick discernable. Pakistan’s near default economy can no longer be characterized merely as a financial issue but one that puts our national security and sovereignty at stake. It is time that our policy makers approach it as such.

(The writers are lawyers with expertise in international disputes. The views expressed in this article are not necessarily those of the newspaper)

Copyright Business Recorder, 2022


Comments are closed.

Hussain Naqvi Aug 21, 2022 04:33pm
AslamoAlikum: Nuclear power is begging IMF !!!!! As per google search Bill Gate's net worth is 113 billion dollars!!!
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Ali Nasir Aug 22, 2022 11:19pm
a clearly politically motivated, possibly pti-inspired, article. i am a supporter of pti, but once in a while I like to read objective assessment of current economic situation. this piece is clearly not objective. we all know in our pti circles that purchasing oil form Russia is not practically possible, but we refer to it anyway cux it serves our anti-US political narrative. you are just repeating what we talk in our circles. your analysis is a politically motivated superficial joke.
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Ajay Singh Aug 23, 2022 09:07pm
This is a crisis of Pakistan's own making; given the choices that the Pakistani elite made over past decades, it is of no surprise. The negative obsession with India, the playing up of the Kashmir issue for self-serving reasons by the army, the cultivation of terrorists, the undermining of neighbor Afghanistan and lending itself to be used by the USA and now China - all these bad choices have come home to roost. Pakistan only has to look at Bangladesh to see how another Muslim majority South Asian nation lives in harmony with India, developing its economy, maintaining its self-respect and rising in the esteem of the global community. It is time Pakistan realized its future lies in South Asia, living in peace with India.
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Majid Akhtar Raffi Aug 25, 2022 02:33am
The addiction to loans and borrowing beyond its means has indeed compromised Pakistan's national security. However, the silver lining is that an internal change of a significant magnitude is required to reset the nations path forward. This change will happen in due course and it will be known as the final era (aka "Nahi Pakistan"). Both "Naya Pakistan (aka PTI) and Purana Pakistan" (a loose coalition of the old political parties aka PDM) are playing their last hand and they will both further weaken the state leaving it in fractious condition. A new deal will need to be made which will lead to a new confederation which will result in the birth of a new nation state! M.A. Raffi, PMP
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