Is the West punishing Pakistan because of China?

The rupee against the dollar regained its value by 57 paisa when markets closed on Friday. This came after the local currency was battered by the US dollar for 15 days. Since PML-N lost in the bye-elections, the rupee in the inter-bank lost its value by Rs29. Overall, since the government led by Prime Minister Shehbaz Sharif took charge the rupee has lost Rs56 or 30% of its value. This happened despite the fact that Pakistan has reached a staff-level agreement with IMF.

The staff-level agreement should have sent a positive signal to the markets but the rupee continued to lose its value against the dollar. The ministers in charge of the finance ministry are trying to allay fears of a potential default yet it has made little impact on the ground. Also worrying is that international rating agencies have downgraded Pakistan’s rating from stable to negative. Mody has done it before the IMF staff-level agreement, which was understandable, but Fitch and S&P have done it despite Pakistan being close to securing the $1.2 billion instalment.

The worsening economic crisis has pushed the government to resort to desperate measures. For example, recently Prime Minister Shehbaz Sharif sent his key aide to Washington in what appears to be part of efforts to seek early IMF instalment. Tariq Fatami, Prime Minister’s Special Assistant, met US Deputy Secretary of State Wendy Sherman at the State Department. The purpose, according to sources, was to seek the Biden Administration’s help for expediting the IMF process. Following the meeting, Army Chief General Qamar Javed Bajwa and US Deputy Secretary of State spoke via telephone.

The foreign media claimed that the call was meant to seek US help to push IMF to release the instalment immediately. Following the telephone call, the US Ambassador in Islamabad met the Finance Minister while the civil and military leadership also sat on the table to discuss a way out of the deteriorating economic situation. What worries the government and other stakeholders is that any delay in the release of the IMF instalment would only put further pressure on the rupee.

The IMF Executive Board is supposed to meet in the third week of August to formally approve the stafflevel agreement allowing the Fund to release the next tranche. But, given the current market situation and uncertainty, the rupee will further lose its value. That is why Pakistan is now making desperate attempts to get the instalment at the earliest. Whether the government is able to achieve that objective remains to be seen.

The situation highlights that international financial institutions backed by the West are now increasingly giving Pakistan a tough time, partly because of our past record and partly because of geo-strategic reasons. That IMF is taking time to release the next tranche and attaching tough preconditions is linked to the China factor. As Pakistan’s options become limited with a looming economic crisis, Western powers, through IMF, are putting pressure on Islamabad to revisit its ties with Beijing. This puts Pakistan in a tight situation. But even if Pakistan makes some adjustments under Western pressure, the country’s economic woes will be far from over. Even with IMF releasing the next tranche and Pakistan selling shares of national assets while getting assistance from friends, it will only provide us with some breathing space.

If 2022 was a tough year 2023 could be even worse amid the backdrop of international recession. Bangladesh, one of the fastest growing economies in the world, has reached out to IMF for a bailout program. This occurred despite the fact that Bangladesh has $40 billion foreign reserves — enough to cover 5 months of imports. There is no crisis like situation there but that’s how countries move proactively. In Pakistan, unfortunately, we have yet to realise the gravity of the situation.