September 25, 2018

Pakistan’s Debt May Be an Opportunity in Disguise

It is critical that Washington seize this opportunity to work with Islamabad.

Pakistan’s recent decision to review its economic agreements with China, if implemented successfully, will pay dividends for promoting regional and global stability. While the world stands to benefit from a more developed and stable Pakistan, Beijing’s lending approach and Pakistan’s mounting debt are likely to deliver questionable results. Washington’s proposed “reset” of relations with Pakistan under Prime Minister Khan’s leadership provides an opportunity for the United States to head off the systemic consequences of China’s Belt and Road Initiative while retaining space for Pakistan to make progress on legitimate U.S. concerns.

Pakistan’s past record of economic mismanagement, coupled with China’s predatory loan practices, is a cause for concern; since 2001, Pakistan has turned to the International Monetary Fund (IMF) for three bailouts. Today’s current account crisis , sparked by excessive fiscal spending, rising oil prices and growing private sector borrowing demonstrates that IMF bailouts have not fundamentally changed the Pakistani government’s approach to spending.

A true economic crisis in Pakistan could send shockwaves through the regional security environment. Pakistan’s global importance remains under-discussed given its fragility . But with the world’s sixth largest population , sixth largest military and sixth largest nuclear arsenal , Pakistan’s ability to shape global trends—even if solely through the introduction of relative chaos and unpredictability—should give onlookers pause. An economic crisis could provide the powerful Pakistani military with the political space needed to seize power. In a worst-case scenario , an extremist group or radical faction of the military could gain control of one of Pakistan’s sensitive military or nuclear sites.

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