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HomeNEWSInternational NewsIs Pakistan Heading towards a total collapse?

Is Pakistan Heading towards a total collapse?

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Is Pakistan Heading towards a total collapse?

Pakistan is headed for a free fall. The economic debt is at an all-time high…

Only two months’ imports worth of foreign exchange reserves…

All-time high inflation …

Debt accounts for 90% of the total national GDP …

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US-EU-UN sanctions …


Pakistan has a troubled past. Pakistan’s economic instability is wreaking havoc on the country’s population. Millions of people are impoverished, and the number of unemployed people is growing. This problem is also producing social unrest and political turmoil. The government is already dealing with high debt, high inflation, and high unemployment, and political unrest makes it much more difficult to attract foreign investment. This might cause the Pakistani economy to deteriorate further, with catastrophic ramifications for the region and the world. What do we need to know and how does the world need to act?

Pic: ThoughtCo

Pakistan’s economy is currently in shambles. The country is dealing with several problems and is a cause of concern for the rest of the world for a variety of reasons. The country already has many terrorist factions lurking around, and political upheaval may provide a conducive opportunity to expand its operations. This might result in increased violence and instability in Pakistan, as well as spillover into neighbouring countries, most notably India. The issue has the potential to jeopardise Pakistan’s cooperation in the battle against terrorism. Pakistan is a vital region to be monitored to keep control over the fight against terrorism, but political instability may make collaborative operations difficult for participants like India, the United States and other allied countries. This may make fighting terrorist groups in the region more difficult, making the world a more dangerous place. The scenario may aggravate Pakistan’s violence, insecurity, and economic hardship, as well as hamper Pakistan’s current limited participation in the fight against terrorism.

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In Pakistan, the inflation rate has reached an all-time high of 13.8%. This has led to a significant drop in Pakistanis’ purchasing power, making it more difficult for them to get basic necessities. Pakistan’s current unemployment rate is 6.3%. This is the highest level in more than a decade. The high unemployment rate generates severe economic hardship as well as social unrest. Pakistan’s foreign exchange reserves have plummeted to a perilously low $10.4 billion. This sum will not cover the country’s imports for more than two months. The country’s economy is suffering as a result of falling foreign exchange reserves, which make it more difficult to import essential goods. Pakistan’s debt burden has already surpassed $130 billion. This accounts for 90% of the country’s total GDP. Pakistan’s heavy debt burden makes it harder to service its debt and strains the country’s economy. Pakistan’s economic development has slowed, with GDP growth predicted to range from 3.5% to 0% by the conclusion of the current fiscal year. Pakistan has a significant current account deficit. This indicates that the country imports more products and services than it exports. Pakistan’s trade imbalance has reached an all-time high of $39.3 billion. The country’s balance of payments is being strained by the country’s growing trade imbalance, making it difficult for Pakistan to fund its imports. Meanwhile, millions of Pakistanis are going to suffer as a result of the economic turmoil. The situation is grave.

Pic: Modern Diplomacy

Businesses in Pakistan are finding it harder to prepare for the future due to political unpredictability. This is causing a drop in investment and trade. The issue is tarnishing Pakistan’s image as a steady and dependable trading partner, making it extremely unappealing for international investment and trade to occur, creating more challenges for the country. In reaction to the political crisis, the United States and other countries placed sanctions on Pakistan. These restrictions make it more difficult for corporations to do business with Pakistan. The crisis’ impact on commerce is likely to be long-lasting. It will take time for Pakistan’s political situation to stabilise and for the nation to reclaim its reputation as a trustworthy business partner. The downturn in Pakistan has resulted in a fall in demand for Pakistani products and a rise in import costs. Import expenses are rising as the Pakistani rupee falls in value versus the US dollar, making imports more expensive. Pakistan’s debt load has increased as a result of the country’s economic disaster. This is due to the government’s need to borrow money to cover its budget deficit.

Meanwhile, the crisis is anticipated to continue to have a detrimental influence on Pakistan’s trade connections with its key trading partners, with lower trade than normal, according to the World Bank’s World Integrated Trade Solution (WITS) database. Pakistan’s commercial partners mostly import textiles, grains, and fruits, whereas Pakistan primarily buys machinery, automobiles, and chemicals.

China was Pakistan’s most significant commercial partner in 2021, with a trade volume of $18.5 billion. The political environment makes it more difficult for Chinese companies to invest in and trade with Pakistan, and the economy is expected to take significant time to recover. In 2022, the quantity of trade between the two countries fell by 10%. This is the first fall in trade between Pakistan and China in five years. The China-Pakistan Economic Corridor (CPEC) is part of the BRI. CPEC is a $62 billion project to improve connectivity between Pakistan and China. Pakistan’s BRI has not realised its full potential due to project delays and partial project cancellations. There is also significant uncertainty about the country’s ability to fulfil its obligations.

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With a trade volume of $6.5 billion in 2021, the United States is Pakistan’s second-largest trading partner. The political instability has reduced US investment in Pakistan as well as commerce between the two nations. The trade volume between the two nations declined by 10% in 2022 and is expected to further decline as a result of the sanctions imposed.

With a trade volume of $5.5 billion in 2021, the United Arab Emirates is Pakistan’s third-largest trading partner. The trade gap between Pakistan and the UAE has grown from $7.4 billion in 2020-21 to $11.4 billion in 2021-22 as a result of the deteriorating political environment over the last year, and recent revisions have stretched it even more. The depreciation of the Pakistani rupee has increased the cost of imports for Pakistani enterprises, raising the cost of manufacturing and making Pakistani exports less competitive. Imports from the UAE cost 20% more in 2022. Trade between the two nations fell by approximately 15% by 2022. The combination of these reasons has resulted in a decrease in commerce between Pakistan and the UAE.

Pakistan’s third-largest commercial partner is the European Union. Imports from the EU to Pakistan have declined by 5% in the recent year. This is due to a variety of circumstances, including import limitations imposed by the government and the drop in the value of the Pakistani rupee. The resulting trade gap increased by 20% in the previous year and by the end of 2022 stood at $25 billion.

The United Kingdom is Pakistan’s fourth-largest commercial partner, with a trade volume of $4.5 billion in 2021. In 2021-22, the two countries’ trade deficit was $2.2 billion. This is a significant increase above the $1.6 billion trade deficit in 2020-21. This is because the British pound is pegged to the US dollar, which has been gaining in value relative to the falling rupee.

Germany is Pakistan’s fifth-largest trading partner if split from EU numbers, with a $4 billion trade volume in 2021.

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These key trading partners share specific worries about the country’s present political and economic situation. Trading partners are concerned about political insecurity, which has made it difficult for the administration to conduct economic changes and make trade and foreign investment viable. This appears to be reflected in the slowing of economic stability, as the government’s ability to service its obligations becomes increasingly difficult. Pakistan’s debt burden is at an all-time high, making it harder for the government to fund its budget deficit.  In Pakistan, inflation is at an all-time high, affecting Pakistanis’ purchasing power and subsequent imports. The government is attempting to lower the debt load.

In the recent year, Pakistan’s foreign exchange reserves have fallen by 15%. This is attributable to a variety of causes, including the trade imbalance, government foreign exchange spending, and a drop in remittances. Foreign direct investment (FDI) into Pakistan fell by 50% by the end of 2022. The administration was negotiating a rescue plan with the IMF. The IMF has already agreed to lend Pakistan $3 billion, but the government pushed for an extra $1 billion; current developments will drive the next administration to seek more. To confront the economic problem, the next Pakistani administration will be recommended to adopt strict measures. In order to lower the budget deficit, the government must implement a variety of austerity measures. These measures would include raising taxes, reducing government expenditure, and freezing government employee pay. In order to lower the trade imbalance, the government will also need to adopt actions such as encouraging exports and discouraging imports.

The international community is concerned about Pakistan’s political instability. The international community must work together to find a solution and return Pakistan to stability. The country, which has a population of approximately 220 million people, is a nuclear-armed state. A complete economic collapse might have a wide range of negative consequences. This might make it hard for any administration to restore democracy and capture and maintain control of the country, resulting in bloodshed and chaos. As a result, the Deep regime may seize control of the military and form an authoritarian regime. A breakdown in the economy might also lead to an increase in terrorism in Pakistan.  This is due to the fact that terrorist groups usually utilise economic hardship to gain new members and perform operations, and, worse, the significant spread of TTP to a reenactment of Taliban 2.0. A collapse of the economy might also lead to a refugee disaster, with millions of Pakistanis forced to flee their homes in search of a better life. This might put pressure on nearby countries, leading to regional instability. The collapse of Pakistan’s economy might have a negative impact on the global economy. This is owing to Pakistan’s substantial textile and other exports. If the economy suffers a downturn, exports may suffer, affecting the global economy.

Pak Army

Pakistan’s economic upheaval poses a severe threat to the rest of the world. The international community must take action to assist Pakistan in stabilising its economy and preventing it from collapsing. Otherwise, the world may suffer a variety of unpleasant repercussions. Pakistan can get financial aid from the international community to help stabilise its economy. This may take the form of a loan or a grant. The international community may facilitate commerce with Pakistan by lowering tariffs and other trade restrictions. This will make it easier for Pakistani exporters to compete with international exporters. The foreign community may invest in Pakistan through corporate and infrastructural investments. This would aid in employment creation and economic growth. The international community has a responsibility to assist Pakistan in dealing with its economic problems. The international world may help to stabilise the economy and build a more affluent future for the Pakistani people by offering financial aid, opening up commerce, and investing in Pakistan.

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Vipul Tamhane
Vipul Tamhane
Vipul Tamhane is an Anti-Money Laundering and Combating Terrorist Financing (AML/CFT) specialist with expertise in international business, and Commercial Law. He is a visiting faculty at Pune University's Department of Defence and Strategic Studies, where he teaches Counter Terrorism to Masters and Postgraduate Diploma students. He is the Founder and Editor-in-Chief of Diplomacy Direct, an upcoming national-interest think tank dealing with counter-terrorism, national security, geopolitics, and international diplomacy.


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