There were concerns that Pakistan's new budget and plan to trim its deficit by cutting down on spending may not be enough to convince the International Monetary Fund (IMF) to resume its loan program. None-the-less, among the political instability and deteriorating economic situation, the IMF’s threat to delay the release of the $3 billion bailout has pushed Pakistan into making reforms that could very much end the country’s sovereignty.
Pakistani Finance Minister Miftah Ismail admitted on June 12 that the IMF is still unhappy with the government over the budget, despite he being the one to introduce the 2022-2023 budget to meet the financial institution’s demands. This was because he did not implement Personal Income Tax (PIT) measures that were suggested by the IMF.
According to the Economic Times, this tax is another issue as few rich people have piloted it, thus leaving the tax burden on the poor. The report said that this has compelled successive governments to borrow from the outside and it is why Islamabad has asked for a loan from the IMF for the 22nd time in the last 60 years.
The Karachi-based Dawn newspaper suggested that there could be an increase in gas, electricity and fuel bills from July. This will be the third hike in petroleum product prices, which will inevitably put further pressure on new Pakistani Prime Minister Shehbaz Sharif.
Even if Pakistan were to receive IMF loans, the financial institution demands that it cannot be used to clear debts emanating from the China–Pakistan Economic Corridor (CPEC), a collection of infrastructure projects that are under construction throughout Pakistan to the tune of tens of billions of dollars.
Beijing’s refusal to renegotiate the power projects under CPEC has fostered suspicion from the IMF as Pakistan has also defaulted in its payments to China. According to local media, 11 Chinese power companies have invested $10.2 billion to generate 5,320 megawatts, but nearly 2,000MW of power plants were shut in May due to coal shortages.
It is recalled that Saudi Arabia and the United Arab Emirates refused to lend money to Pakistan until it secured funding from the IMF first, signifying that traditional relations have dramatically changed in recent years.
Ismail said on May 28: “We went to Saudi Arabia, Dubai and spoken to other countries – they are ready to give money, but all of them say we need to go to the IMF first.”
Saudi Arabia has majorly withdrawn from its decades-long policy of funding radical Islamist groups, with one of their major patrons historically being Pakistan.
However, as Saudi Arabia softens its Islamist image, Pakistan insists on maintaining radical madrassas and funding terrorist organizations. It is for this reason that Saudi Arabia and the UAE demand IMF approval first to ensure that their own loans are not wasted on endeavours of radical Islamism.
The ultimate price though is becoming economically dominated by a foreign institution, as happened to Greece during its own famous economic crisis. The IMF has already imposed domestic taxes and decides on fuel prices, but it is also strategizing on how to obtain details about Pakistan’s dealings with China under CPEC.
Former federal minister Asad Umar believes that Islamabad will not allow any external interference in CPEC.
“During the PTI government there was no compromise made in our commitments under CPEC. Now news reports are that the IMF is demanding changes in CPEC contracts. Under no circumstances should we allow any external interference in CPEC. These decisions should be based solely on Pakistan’s national interest,” he said.
This is not a guarantee though as the Pakistani rupee has dropped by 27% since July 1, 2021; its foreign exchange reserves have halved in less than a year; and, according to Bloomberg, the country is now the worst economic performer in Asia.
The Dawn publication believes that the Pakistani government has acceded to all of the IMF’s major demands. This was a predictable outcome since electricity outages are disrupting life and business in Pakistan as Chinese power suppliers have not been compensated, making efforts to improve the ailing economy all the more difficult.
Prime Minister Imran Khan claimed on June 16 that the Pakistani government did “not have a plan” to address the country’s economic challenges, adding that if the current coalition remained in power, Islamabad may have to “compromise on its sovereignty”.
“The direction in which Pakistan has headed, I fear that we will [meet the same fate as] Sri Lanka. There has been an economic collapse there and I fear that we are headed in the same direction,” he added.
In this way, Pakistan finds itself in a difficult position as its economy is on a downward spiral but it is unwilling to relinquish its network of jihadist proxy militias and vast military.
The Chinese are no longer willing to give out loans so easily and the Arabs for their part will only do so on the condition that the IMF also lends money. However, the condition of IMF loans is often sacrificing sovereignty, meaning that Islamabad will effectively become economically dependent on China, the rich Arab States and Western financial institutions.