SPELL OF MISFORTUNE

While the attention of international community has been focused on the war in Ukraine, the unprecedented natural tragedy in Turkey and Syria, the situation in South Asia's largest state remains complicated. Pakistan is one of the largest countries both in terms of population and the number of Muslims living there. Experts believe there could be an upsurge of violence in Pakistan, which is struggling to cope with a severe economic crisis coupled with some political instability.

Series of problems

As experts explain, Pakistan is facing a balance-of-payments crisis. That is, the country spends more on trade than it generates income, causing foreign reserves to dwindle and the value of its own currency to drop. Also, interest payments on debt from foreign creditors are becoming even more expensive, which increases the cost of importing goods and thus requires an even greater reduction in reserves. The economy is getting worse amid the rising inflation rate, which constantly makes the cost of basic necessities, food, electricity and petrol more expensive.

One of the main reasons for Pakistan's devastated treasury is the country’s high dependence on fossil fuel imports and the rising prices of global hydrocarbon. According to the Asian Development Bank, Pakistan imports almost a third of its energy resources (oil, coal, LNG). Therefore, Pakistan has become one of the countries that the Ukrainian war hit the most, albeit indirectly. Because the EU countries, eager to eliminate their energy dependence on Russia, began buying LNG from all over the world, leading to shortages and rising costs. Consequently, Pakistan had to resort to massive power cuts in January to save money, when even hospitals were running on standby generators, and millions of people were left without power, as well as without heating and drinking water due to the failure of electric pumps.

Certainly, the incumbent government of Prime Minister Shahbaz Sharif, who came to power last year after a standoff with his predecessor Imran Khan, now has to solve all these problems. Sharif accused his predecessor of mismanagement, among other things. But we do not know how long Sharif himself will be able to stay in power. So, fearing national bankruptcy, Sharif was nevertheless bold enough to request an unblocked $7 billion in emergency financing from the International Monetary Fund. This is not the first time that Pakistan has sought help from foreign creditors. But this time the conditions were quite stringent. The IMF demanded that Islamabad implement fiscal reforms, including the acceptance of a market-determined exchange rate for the country's currency, as well as a reduction in fuel subsidies. Such measures are a priori bound to provoke widespread popular discontent, and Sharif's hesitation was therefore understandable. At the end of January, Pakistan did let its currency rate be determined by the market. As a result, the Pakistani rupee collapsed by 20% against the dollar and fuel prices soared by 16%. Notably, according to the IMF, more than 30% of Islamabad's total external debt is owed to China, which is three times what Pakistan owes the IMF. Moreover, Islamabad continues to borrow from Beijing.

There are other factors that are beyond the government's control and exacerbate the economic situation in Pakistan. For example, due to the global economic downturn, the demand for Pakistani commodities has dropped, while the rising exchange rate of the US dollar last year has put pressure on countries that import significant quantities of food and fuel.  Before the pandemic, Pakistan ranked 47th among the world's importers ($58 billion, 0.3%). The country's exports, on the other hand, consist of goods such as textiles, cotton and clothing (56.9%).

Pakistan is also among the countries most affected by the effects of climate change. Catastrophic floods in June 2022 inundated one-third of the country, affecting 33 million people, with damages estimated at billions of dollars. The flooding has further exacerbated the economic hardship caused by the COVID-19 pandemic.

Unsettling forecasts

Agriculture was particularly affected by the disaster, with many farmers losing their crops of rice, cotton and dates. According to the World Bank estimates, Pakistan needs at least $16b  as full-fledged assistance to the affected population, reconstruction of flooded areas, and the provision of housing. Naturally, Islamabad does not have this money. Therefore, it is not surprising that last October, the World Bank predicted that nine million Pakistanis could fall below the poverty line.

Pakistan is not immune to more floods in the future. Scientists point out that 2.1 million Pakistanis live in the vicinity of glacial lakes, which are threatened by overflow due to global warming. At the same time, droughts and hurricanes cannot be ruled out in some parts of Pakistan.

Among other things, the country has serious security problems. On January 30, a suicide bomber blew up a mosque in Peshawar, killing at least 100 people and injuring more than 200. Most of the victims were policemen attending the mosque, which is close to their barracks hosting the provincial police headquarters and anti-terrorist unit. "Terrorists want to sow panic by attacking those who are doing their duty to protect Pakistan," Prime Minister Shahbaz Sharif said in a statement following the attack.

Many observers believe the police in these areas are ill-equipped compared to the well-armed and trained militants. Interestingly, the attack took place on a day when Mohammed bin Zayed Al Nahyan, president of the United Arab Emirates, was due to arrive in Islamabad and on the eve of a visit by an IMF delegation.

The Afghan threat

The security situation in Pakistan began to deteriorate after the Taliban seized power in Afghanistan in August 2021. This includes attacks by the Pakistani branch of Taliban, Tehrik-e-Taliban Pakistan, Baloch separatist groups and other movements, which operate from areas along the mountainous border with Afghanistan (almost 2,430km). 

Among the many demands of the Pakistani Taliban are stricter enforcement of Islamic laws, the release of their members from detention, and the reduction of Pakistan's military presence in the territories bordering Afghanistan. They are also against the merger (since 2018) of Pakistan's tribal districts into Khyber Pakhtunkhwa province.

Remarkably, in order to improve their popularity, the armed groups are taking advantage of the poor living conditions of the population, recruiting them into their ranks, playing on their desperation.

Yet, despite domestic problems, Pakistan is a nuclear power and enjoys a position of a major geopolitical actor. Pakistan has played an instrumental role in endless foreign policy combinations. The role of Islamabad in the security of the Middle East and Central Asia cannot be underestimated. This alone is reason enough to monitor the domestic situation in Pakistan.

Despite the geographical distance, Baku and Islamabad have a special relationship. It is based on a strong strategic partnership and alliance. Azerbaijan is confident that Pakistan has all the resources it needs to overcome the domestic challenges it currently faces.