The deepening financial crisis in Islamabad and the apathy of Rawalpindi

The bad news is that three years after Sri Lanka was forced to cede the port of Hambantota to China on a 99-year lease due to a loan default, media reports that Uganda’s airport d ‘Entebbe may soon go down the Hambantota route for the same reason. However, the good news is that even though China has taken control of its operations, the port of Gwadar is still in Pakistan’s possession. [atleast on papers] and with a “sweeter than honey” friendship between the two, Islamabad needn’t worry [or so it presently seems].

The bad news for Pakistan is that not only has its current debt crossed the Rs 50 trillion mark.[which exceeds the country’s GDP], but the International Monetary Fund [IMF] also rejected Islamabad’s claim that taking loans from the central bank to finance its operations was its constitutional right. Still, the good news is that Saudi Arabia came to Islamabad’s rescue with a $ 2 billion one-year loan as well as a $ 1.2 billion oil loan on a facility deal. deferred.
That Saudi Arabia granted this loan at an interest rate of 4% [which is one-fourth times higher than the previous loans] doesn’t seem to bother cash-strapped Islamabad, nor does the clause that if Riyadh demands prepayment, Islamabad should repay that loan within 72 hours. Such a demanding and humiliating clause has probably never been invoked before by the House of Saud when granting loans to another country.
But then, right now, Islamabad cannot be a “choice”.
Normally, any indebted country would think twice about taking out a loan with a “72 hour” repayment clause, but Islamabad is an exception. Prime Minister Imran Khan considers this loan as “the last generous gesture of the Kingdom of Saudi Arabia reaffirms the friendship in all weather between the two states”. [like they recently did]he can always count on another Beijing “friend of all times” to bail out Pakistan, just as happened when Riyadh demanded an early repayment.
Many in Pakistan believe that Beijing’s munificence stems from its “sweeter than honey” relationship with Islamabad. They also believe that Beijing has been a true friend and has helped Islamabad by providing loans under the bilateral currency exchange agreement, which is not required to be on its books and therefore does not appear in Pakistan’s external debt figures. However, there are others who do not think so. As the loans taken out under the currency swap arrangement are not reflected in the books as outstanding loans, this does not give an accurate indication of Pakistan’s actual debt position and therefore indirectly encourages them. blind borrowing.
This is exactly what an eight-year-old report published in Pakistan’s International Tribune[“Money out of nowhere: SBP utilises Chinese currency swap agreement to shore up reserves,” May 30, 2013] had mentioned. An official speaking on condition of anonymity warned that “using the Chinese trade finance facility should not be seen as helping a friendly country.” This is a loan that Pakistan will have to repay.
With Riyadh specifically mentioning the “sovereign default”[failure of Islamabad to repay its external debts] as one of the reasons for invoking the “72 hour repayment” clause, it is evident that the apprehensions that Islamabad will not repay its loan are not mere speculation, but a distinct possibility. However, Islamabad has rejected repeated warnings issued by renowned international organizations and think tanks with established non-partisan credentials.
So, with Beijing serving as the proverbial goose that lays the golden eggs, it’s business as usual for Islamabad. It was ironic that in 2020, when Prime Minister Imran Khan called on the one hand rich countries to consider a “global debt relief initiative” by declaring: “We do not have the money to spending on already overburdened health services and to prevent people from starving to death, ”on the other hand, his government approved a huge 11.9% increase in Pakistan’s defense budget.
National security is of paramount importance and not negotiable. So while defense spending cannot be drastically reduced, it still can be. With pro-Pakistan Taliban regime in Kabul and ceasefire along the Line of Control [LoC] as well as the international border with India, there has been a marked reduction in the perception of threat to Pakistan. Moreover, due to Sino-Indian border tensions and reinvigorated Sino-Pakistani bonhomie, the chances of Indian belligerence on its Western Front appear unlikely.
So while the overall threat analysis does not justify an 11.9% increase in defense spending, Rawalpindi’s excessive obsession with matching India’s military capacity is the main reason it consumes the lion’s share of Pakistan’s national budget. For example, on November 25, Pakistan tested its Shaheen-1A surface-to-surface ballistic missile and the reason given was “the revalidation of certain design and technical parameters of the weapon system.”
Ballistic missiles cost a fortune, and as Pakistan faces an unprecedented financial crisis, “revalidation” is certainly a non-essential luxury. But then, since India had tested its Agni -5 intercontinental missile at the end of October, it was obvious that Rawalpindi would follow suit. Likewise, while the Pakistani Prime Minister announces that “Our biggest problem is that we do not have enough money to run our country, which forces us to borrow loans”, the Pakistani army is still in in the process of closing a $ 1.5 billion deal. with Turkey for the purchase of 30 Turkish-made T129 Atak helicopters.
In 2019, Rawalpindi announced a “voluntary reduction in the defense budget” claiming it would not come at the expense of “defense and security” and assured the nation that the Pakistani military would “maintain [an] potential for effective response to all threats. However, this announcement was clearly meant to get on the good books of the IMF and far from the reality, as Pakistan’s defense spending has consistently shifted north thereafter. This has made pragmatists wonder: if the Pakistani armed forces are sure that they can effectively manage national defense with a budget cut, then why the perpetual increase every year?
For the uninitiated, the Pakistani military has a phenomenal private financial empire and in 2016, while answering a question raised by the Pakistani People’s Party [PPP]Senator Farhatullah Babar and Federal Defense Minister Khwaja Asif responded by revealing that around 50 business entities were operated by the Pakistani armed forces. These include virtually everything under the sun, be it stud farms, sugar factories, shoe, wool and clothing dealers, restaurants and wedding halls, insurance, petroleum, cement, fertilizers, power generation and, believe it or not, even a bank!
Famous Pakistani analyst Ayesha Siddiqa [author of Military Inc: Inside Pakistan’s Military Economy], estimated the net worth of business assets held by the Pakistani armed forces at around $ 20 billion on a conservative scale.
Surprisingly, the same military that has so graciously recommended a “defense budget cut” so graciously, is unwilling to help ease the country’s budget woes by handing over all or part of its for-profit non-military businesses to the government. government. On the contrary, Rawalpindi was so concerned with protecting and expanding his business empire that the other day, observing that “what colonels and majors desire, happens,” asked the Chief Justice of Pakistan, the Judge Gulzar Ahmed, Secretary of Defense Lt. Gen. Mian Mohammad. Hilal hussein[Retired]- “Have wedding halls, cinemas and housing companies been built?” [by Pakistan army] for defense purposes? “
Could there be a more dishonorable observation about the cadre of officers in a country’s armed forces?

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