What the fall of Pakistan could mean for the world

Vendors sell fruit under battery lights in Lahore, Pakistan, on Monday, Jan. 23, 2023.  Millions of people across Pakistan's major cities were plunged into blackouts due to power grid failure, another blow to the already suffering country.  Increasing energy consumption.  Photographer: Betsy Jolls/Bloomberg via Getty Images

Vendors sell fruit under battery-powered lights during a blackout caused by a power grid failure in Lahore, Pakistan, on January 23, 2023.

Photo: Betsy Joles/Bloomberg via Getty Images

last year It has brought Pakistan to the brink. A series of rolling disasters — including catastrophic floods, political paralysis, bursting inflation and a resurgent terrorist threat — now threaten to send a key, if troubled, global player into a full-blown crisis. If the worst happens, as some experts have warned, the consequences of the disaster unfolding in Pakistan will reach far beyond its borders.

“This is a country of 220 million people, with nuclear weapons and serious internal conflicts and divisions,” said Uzair Yunus, director of the Pakistan Initiative at the Atlantic Council’s South Asia Center. “The world did not like the outflow of refugees and weapons from countries like Syria and Libya. Pakistan is much bigger and more productive than that.”

“If the economy remains in a moribund state, and there are commodity and energy shortages that lead to political crises on the streets of major cities, it will allow the Pakistani Taliban and other terrorist groups to start hitting the government more directly,” said Yunus, vice president of strategic advisory firm Asia Group. President too. “We see a significant weakening of the state and its ability to impose order.”

It is difficult to overstate the difficulty of Pakistan’s current situation. An unfortunate string of recent events coupled with chronic mismanagement has posed a potentially fatal threat to Pakistan’s political system.

“Three crises are intersecting in Pakistan right now: an economic crisis, a political crisis and a security crisis that has escalated since the fall of Kabul,” said Yunus, who described the situation as “the worst threat to Pakistan’s national unity”. Since 1971” – the year Bangladesh fought for and won its independence from Pakistan.

Pakistan’s foreign reserves have fallen to just $3.7 billion, enough to import several weeks of energy to keep its cities and businesses running, while its public debt has ballooned to $270 billion. Pakistan was particularly affected by the war in Ukraine, which forced it into a bidding war with other developing countries for scarce liquefied natural gas that it was unable to afford.

Pakistan’s crushing weight of debt has forced Prime Minister Shehbaz Sharif to beg the International Monetary Fund to restart a financial bailout that was stalled early last year. Negotiations are underway as the IMF demands painful concessions – a tough sell ahead of consequential elections planned for later this year.

There are already signs that the economic pressure will affect the most basic needs of Pakistanis. In late January, Pakistan suffered an unprecedented nationwide blackout as power went out across the country for more than 24 hours. Although the cause of the outage is unclear, it could be a prelude to what lies ahead.

“Pakistan’s power generation capacity is significantly dependent on continuous imports of energy,” said Yusuf Nazar, a Pakistani economic analyst and former banking executive. “You can imagine what will happen when we start seeing power cuts and blackouts or even fuel shortages for transportation, at a time when the country is dealing with 40 percent inflation.”

Compounding crisisEspecially serious for a debt-ridden economy with no strong political leadership and a kleptocratic elite, long overdue. While much of Asia has gradually become richer and more stable over the past few decades, Pakistan remains poor, chaotic and unstable.

“During the globalization and trade liberalization that took place across Asia in the 1990s, Pakistan was busy playing power games between military and civilian elites,” Nazar said. “This current crisis was brewing long before the Ukraine war, which ultimately broke the camel’s back.”

“This current crisis was brewing long before the Ukraine war, which ultimately broke the camel’s back.”

Pakistan’s economy has long been characterized by a highly corrupt set of policies designed to subsidize civilian elites and military officials while ignoring the vast majority of the population who work in industries such as agriculture and the textile industry. But the influx of foreign money that fueled the lavish lifestyles of Pakistani elites seems to be drying up.

Saudi Arabia, Pakistan’s longtime donor, announced last month that future aid packages to foreign countries would depend on domestic market reforms — a clear warning to recipients like Egypt and Pakistan whose economies are characterized by bloated public sectors and military controls. The UAE recently pledged some financial aid to Pakistan, but the amount is not enough to cover the import of essential goods for several more weeks. Meanwhile, China, which holds 30 percent of Pakistan’s debt, has so far shown no willingness to renegotiate terms, while the United States has largely withdrawn from the region following its bitter exit from Afghanistan.

Pakistan’s relationship with India, its economically booming neighbor now led by a cutthroat Hindu nationalist government, also shows no signs of improvement.

“Many people talk about separating India and Pakistan in terms of their economic trajectories, especially till the 1980s Pakistan’s trajectory was more positive. There are many factors one could cite in terms of years of bad policy, but one also has to talk about elite capture,” said Michael Kugelman, deputy director of the Wilson Center’s Asia Program.

“India has made efforts to implement policies that move closer to things like universal education and access to healthcare,” he continued, “but those in power in Pakistan have ignored the economic needs of the people.”

Local residents line up to buy wheat flour at government-regulated prices in Islamabad on January 10, 2023.  - Pakistan's economy is collapsing alongside a simmering political crisis, with a falling rupee and inflation at multi-decade highs, but devastating floods and a global energy crisis have added to the pressure.  (Photo by Amir Qureshi/AFP) (Photo by Amir Qureshi/AFP via Getty Images)

Local residents wait to buy wheat flour at government-regulated prices in Islamabad on January 10, 2023.

Photo: Amir Qureshi/AFP via Getty Images

Economic crisis Coupled with political instability that could weaken the state’s grip and make governing Pakistan more difficult with each passing year.

Imran Khan has been rallying to re-establish himself as prime minister after being ousted from power during a clash with his one-time supporters in the military in what he claimed was a US-led conspiracy. Amid a wave of targeted killings and arrests of his associates and supporters, Khan was injured last November when a gunman attempted to shoot him during an election rally. A polarizing figure in Pakistani politics, Khan boasts a large and committed base. It is easy to imagine that if he is killed, Pakistan will descend into a massive civil war.

As things stand now, all major political parties, despite their sharp differences, are invested in keeping the country intact and the military remains a powerful arbiter of politics. But toxic political infighting and frequent changes in leadership have made responsible stewardship of the economy more difficult – driving Pakistan into deeper trouble.

“If you are unable to meet people’s economic needs and only respond with force, it will only catalyze greater anger.”

“Division of the state is not possible, but we see a deep-seated economic crisis that pushes many people below the poverty line, puts basic goods out of reach, increases food insecurity and creates resentment among people,” Arif said. Rafiq, a non-resident fellow at the Middle East Institute and an expert on Pakistan. “This could have real political consequences, not only for the political parties but also for the army. If you are unable to meet the economic needs of the people and can’t just respond with force, that will fuel more anger.”

In recent months, Pakistan has seen a resurgence of terrorism from radical Islamist groups as well as ethnic militants in the resource-rich province of Balochistan. The Pakistani Taliban, who have killed thousands of Pakistanis during the war on terror, announced a comeback last month with a deadly suicide attack that killed more than 100 people attending Friday prayers at a mosque. The attack is a warning sign that instability in neighboring Afghanistan, which has seen tens of thousands of deaths during the past two decades of US occupation, could again affect Pakistan.

The economic and political crisis has also extended to the slow recovery of millions of people across the country after last year’s historic floods that submerged nearly a third of Pakistan’s land and displaced millions of its poor citizens.

Although climate change driven by rich countries can be partly blamed for the disaster, international aid has been slow and negligible, leaving Pakistan largely on its own.

Former Prime Minister Asif Ali Zardari, notorious for his personal corruption abroad, once reportedly told US diplomat Richard Holbrooke that Pakistan was “too big to fail” – comparing the country to US banks that received massive bailouts in 2008 to stave off collapse. Although Pakistan is a nuclear power, as well as the world’s fifth most populous country, whether its leaders can pull themselves together and find a way out of the onslaught of crises – perhaps the worst in the country’s history – remains to be seen.

“There is tremendous uncertainty, because people don’t know whether Pakistan will default on its foreign debt sometime this year only,” Rafiq said. “There are elevated risks across the board and every major index has turned lower. It’s hard to see a path to stability because the government’s legitimacy comes from its ability to manage the economy — and things aren’t going to get any better in the near future.”