💡Lights Out in Pakistan
With a debt of $130bn, Pakistan is on the verge of bankruptcy. How does this impact India and the world? ReadOn!
15+ hours of power cuts.
Shortages of food, fuel gas, and medicines.
$130 bn in debt (2021 estimates)!
Only 3 weeks’ worth of foreign reserves left.
That’s the reality of Pakistan right now. Our neighbour is facing a massive economic crisis and could go bankrupt soon.
So, today we’re exploring:
Why is Pakistan facing an economic crisis?
How does this impact India?
So, buckle up and ReadOn!
🤔 Why the Sad State of Pakistan?
The major reasons for Pakistan’s economic decline are:
More imports than exports
High debt
Pakistan imports from all over the world, including India.
It has to import even the most essential medicines like paracetamol! In 2021, Pakistan’s imports amounted to $56.380 bn, while exports were only $25.304 bn.
Plus, exports have been declining due to the country's lack of investment in private firms.
Result? A constant trade deficit.
So, Pakistan has to keep digging into foreign reserves to pay bills.
This causes reserves to decline (making them more expensive because demand is high and supply is low). This in turn leads to a decline in the value of the local currency: Pakistani rupee has hit a 20-year low now.
Decline in the value if currency means imports get more expensive: the country now needs more money to import goods.
So, it borrows money.
This domino effect explains Pakistan's debt of $130 bn. It is in its 23rd International Monetary Fund debt programme!
Now, some developed countries have higher debts than Pakistan.
But their economic development is much faster than Pakistan's.
So, other countries can borrow, pay off some debt and continue borrowing (yes, the world economy runs on debt). But Pakistan often comes back to square one: on the verge of defaulting on loans.
Now, this brings us to a major question…
🤨 Why has Pakistan not Developed its Economy?
When India and Pakistan broke up, Pakistan had a major advantage: it shared a border with Afghanistan.
They didn’t realise this advantage until 1979 when the Soviet Union captured Afghanistan to protect its borders.
Now, the US needed to keep an eye on the Soviet Union. And Pakistan was the perfect place to do this from.
The US could rent out Pakistan's bases and military to keep an eye on the Russians.
What did Pakistan get?
Money.
But this cash cow was going to disappear after the Soviet Union disbanded in the 1990s.
However, the 9/11 attack happened and the US once more needed to keep an eye on Afghanistan. So, and the rent money kept pouring in.
At one point, the US was renting the Pakistani army for $100 mn per month!
Pakistan essentially became a rentier state: earning mainly through rent.
What went wrong was how Pakistan spent this money.
A lot of the money was sucked by elite families that essentially ran Pakistan.
The rest went into military and defense, mainly the nuclear bomb project.
“Pakistan will fight, fight for a thousand years. If India builds the (atom) bomb.. (Pakistan) will eat grass, even go hungry, but we will get one of our own (atom bomb). We (Pakistan) have no other Choice!” Pakistan’s PM Zulfikar Ali Bhutto had said back in the 1970s after it lost East Pakistan (now Bangladesh).
And this obsession over nuclear weapons is a major reason behind Pakistan’s ruin today.
If Pakistan had not spent money building a nuclear weapon, it could have increased its per capita GDP by $718 per year!
If it had invested that money to support manufacturing, industries, and development, the figure could have been much higher.
Pakistan could have been a prosperous country, not a broken one.
💰 Why Pakistan Will Probably Never Go Bankrupt
You can not allow a nuclear-armed country to go bankrupt.
You simply can’t. The risks are too high.
So, aid will always pour in for Pakistan.
UAE has already rolled over a loan of $2 bn and will give an additional $1 bn in loans.
The US is giving another $100 million for flood relief (Pakistan was hit by devastating floods last year, which further impacted its economy).
More help will probably come from China, which is looking to team up with Pakistan to defeat India.
📊 The Impact of Pakistan’s Economic Crisis on India
Pakistan may always get rescued. But economic instability comes with political instability.
One PM has already been removed from power in the country, soon it may be the whole government.
You see, Pakistani Taliban has been wanting to take control of the country. Now might be the perfect time to strike:
A time when the whole country is weak and faith in the current government is dying down.
And if the Pakistani Taliban takes over, India will be in a whole lot of trouble.
Battles and instances of terrorism will increase.
More money will have to go towards war efforts, putting development on the back burner.
This won't do anyone any good.
On the other hand, Pakistan's development will bring it economic prosperity and growth.
Most importantly, it will bring a ray of hope to the lives of its people.
Will Pakistan be able to rise from the ashes and give light to the world?
Let us know if you found this informative. You can reply to this email with your responses or ping us directly on WhatsApp!
Nice Article.