The only news of worth coming out of the Future Investment Initiative (FII) Conference in Saudi Arabia—or “Davos in the Desert”, as it is being termed—is of the US$ 6 billion support that Pakistan Prime Minister Imran Khan has been able to obtain from the Saudis for the collapsing Pakistani economy.
Khan travelled to Riyadh aboard an exclusive airliner to attend the FII Conference and came under severe criticism within Pakistan for using such a facility at a time of crisis. While being queried on issues concerning Jamal Khashoggi, the Saudi journalist killed at the Saudi consulate in Istanbul in early October 2018, Khan remained diplomatically evasive, not wishing to upset his hosts. He said he was attending the conference despite the “shocking” killing of Khashoggi because “unless we get loans from friendly countries or the IMF, we actually won’t have in another two or three months enough foreign exchange to service our debts or to pay for our imports. So we’re desperate at the moment.”
The Saudi Crown Prince’s sincere efforts towards creating an alternative financial centre in the Middle East in readiness for making the Saudi economy independent of energy revenues by 2030 has come a bit of a cropper with the developments in Istanbul and the boycott of the FII Conference by most major developed countries, led by the United States (US), the United Kingdom (UK), and Germany. Khan did not have much choice as far as attendance at the Conference is concerned, given the state of Pakistan’s economy and the projected presence of international investors and major economic players at the conference who can make a difference to Pakistan’s fortunes.
To have secured US$ 6 billion worth of support from Saudi Arabia at such a time may be considered a major achievement. As per the agreement, Saudi Arabia will place a deposit of US$ 3 billion for a period of one year as a balance-of-payments support. In addition, a one-year deferred payment facility for import of oil, up to US$ 3 billion, will be provided by Saudi Arabia; essentially, an energy bailout. This arrangement will be in place for three years, which will be reviewed thereafter. The interest that the Saudis were earlier expressing in energy infrastructure at Gwadar seems to have blown over.
What are the circumstances that necessitated this visit and the negotiation for assistance, which, domestically in Pakistan, is being perceived virtually as begging? Even before the recent general election, which brought Khan to power in Pakistan, the state of the economy was being spoken of in muted terms. It was almost an issue of national humiliation, bordering on intense negative self-esteem for most Pakistani citizens. As it is the Pakistani brand, and the passport isn’t the most popular one around the world, that makes Pakistani citizens quite defensive and self-critical in international gatherings.
The truth is that Pakistan mismanaged its macro-economics to such an extent that it is left with just US$ 8.5 billion in foreign exchange (forex) reserves; that is sufficient to pay for 53 days of average imports. It has gotten itself into a major debt trap through what it perceived as the greatest economic project of the century, the China-Pakistan Economic Corridor (CPEC). With vague, undetermined terms and conditions, the CPEC, in its fourth year now, has failed to deliver any dividends and has succeeded in pushing Pakistan into a debt trap from which it is finding itself difficult to escape. With high international oil prices and a dismal domestic power situation, the rupee has crossed Rs 130 (effectively Rs 133) to a USD—it’s a fall of 27 per cent in seven months.
As per a report, the last fiscal year ended with a current account deficit of US$ 18 billion, 5.7 per cent of the gross domestic product. The budget deficit has crossed Rs 2 trillion. There is a need for US$ 8 billion for debt servicing over the next 12 months. That is why the crisis has resulted in a profit-making company like Suzuki Motors seeing its annual profits plummet by 91 per cent to Rs 95 million. As the level of the lowest strata, the price of a Tandoori roti in Karachi’s street restaurants has seen a rise by Rs 3-5 per piece.
Interestingly, the Pakistan media reports that the Economic Coordination Committee has approved the sale of three JF-17 manufactured lightweight, single-engine, multi-role combat aircraft developed jointly by the Pakistan Aeronautical Complex (PAC) and the Chengdu Aircraft Corporation (CAC) of China, to Nigeria at a cost of US$ 184.3 million. This is a measure to raise the level of forex. However, there will have to be far more serious measures undertaken than such harebrained one-time ideas that cannot sustain and only divert attention from the main problem. The Dawn, in a recent commentary, wrote: “The rupee is also going to remain under pressure for obvious reasons: a high current account deficit, low growth in exports, large import bills, an insufficient increase in remittances, no huge foreign direct investment in the short run, foreign funds in no mood to invest in our stock market and rising official repatriation of foreign exchange.” All this needs to be addressed along with a serious consideration about the move to seek a bailout from the International Monetary Fund (IMF), something Khan spoke about just two weeks ago; we haven’t heard much on that since then.
Pakistan’s problem is its terrible reputation, although it spins its stories very effectively at international meeting grounds. Somehow that stage is past, and it’s more serious business now. The US, long taken for a ride by the Pakistani leadership, especially the deep state, is no longer willing to play ball in bailing out Pakistan without commensurate measures undertaken by Pakistan in return. Prime among them is to show a serious intent and demonstrate full support towards US interests in Afghanistan; that means effectively neutralising the Haqqani network and doing more internally within Pakistan to quell the tide of radical Islamists. Under threat from the Financial Action Task Force (FATF) for insufficient action against terror financing and other enablers that support terror activities and from Secretary of State Mike Pompeo, who made it clear that Pakistan needed to do more to earn a bailout (including more transparency on terms of the CPEC), Pakistan has been hopeful of Chinese financial support.
China has provided US$ 6 billion to it in the last 14 months, but is currently under stress due to the trade war with the US. How far it will go towards bailing out Pakistan is yet questionable. Pakistan’s friends within the Islamic world have shown no inclination for any such support.
What is surprising is that India, with over US$ 400 billion in forex reserves but under economic stress due to high-energy prices, has decided to make cuts in its standing army to the tune of 100,000 troops and resort to other economy measures. The same is not evident within Pakistan, which continues to function as if a crisis is nowhere on the horizon. The media is reporting the effects of economic stress with limited announcements on what countermeasures are being taken to reduce government spending and economise. When Khan keeps speaking of his offer of talks with India, we never hear from him why he can’t look at greater economic cooperation with his neighbour. He can get enough power from India and attempt to boost trade by offering the “Most Favoured Nation” status to India. However, having ridden to power atop an anti-India tiger, it is not easy getting off.
Khan expectedly continues to remain in cahoots with the deep state and only an even deeper crisis than the current one may force him to change his stance. The deep state over the last week has attempted to trigger more turbulence at the Line of Control and the Kashmir hinterland. Khan will have to realise that he is party to the doom that the deep state is taking Pakistan towards. Uncompromising on all fronts, Pakistan will be ignored by the US, China, and India; a humanitarian crisis within will put it precariously in a state where its internal security situation will become untenable and thereby threaten the security of its huge arsenal of nuclear strategic assets. More than anything, that is what worries the world; 210 million people in a state of economic distress is not something anyone in the world would be happy about, least of all neighbours who will be forced to bear the consequences of this.
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