In the wake of the recent crisis, Hambantota in southern Sri Lanka housed ousted president Gotabaya Rajapaksa until he was forced to flee altogether. This continues the trend in the city, especially the strategic deep-sea ports, which are in the news for all the wrong reasons. In 2017, when Sri Lanka found it difficult to repay its debts on time, it sold the port's 99-year lease to the Chinese company that built the port in exchange for some quick cash. Many analysts and writers have written that Hambantota is "Evidence A, theorizing that China deliberately finances extravagant infrastructure projects by providing loans, thereby plunging developing countries into a "sector trap."
Similarly, many analysts and writers have warned that the same fate could befall Pakistan, where Chinese authorities have been actively involved in investment projects since 2015, particularly under the China-Pakistan Economic Corridor. Like Sri Lanka's Hambantota, Chinese has been investing heavily in Gwadar, a deep-sea port in Pakistan's southwestern Balochistan province and the center of Pakistan's CPEC. So news about hambantota port is a wake-up call in Pakistan's power corridors. Some fear that if China's influence in Gwadar increases further, it may follow the example of Sri Lanka's ports.
Today, the current political and economic situation in Sri Lanka has deteriorated dramatically, culminating in debt arrears. Amid shortages of basic necessities, mass protests broke out among Sri Lankans. The crisis is unlikely to be resolved anytime soon, although protesters have forced Rajapaksa to resign. He was replaced by Prime Minister Ranil Viklemasingha, who was also unpopular with the masses and was seen as a symbol of the political status quo.
Pakistan (and other developing countries) are once again being discussed in light of the deteriorating situation in Sri Lanka, and questions have been raised about whether the country will follow the same dark path.
There is no doubt that Pakistan's economy is also in chaos, and it is getting worse and worse after political uncertainty. There is an overall unemployment rate, while inflation is soaring. Among other things, Pakistan's English-language daily Newspaper, The News, recently reported that the value of the Pakistani rupee against the dollar has deteriorated by more than 4,100 per cent, from just 4.76 rupees per dollar in May 1972 50 years ago to 200 rupees per dollar on May 18, 2022. The depreciation of the Pakistani rupee against the dollar continues to decline, at 225 per dollar at the time of writing, further exacerbating the economic woes amid a reduction in foreign exchange reserves.
Like Sri Lanka, Pakistan welcomes Chinese investment to support a sluggish economy. That's why some analysts believe that China's massive investment in Pakistan has pushed it to the brink of economic collapse. But this claim is exaggerated: most of Pakistan's problems, especially its economic problems, are due to its own mismanagement, lack of planning, political uncertainty and, above all, deteriorating relations with its traditionally good neighbors.
A case in point is the recent government of former Prime Minister Imran Khan, which allegedly came to power in 2018 with the support of a strong security apparatus. Pakistan's relations with Saudi Arabia and Turkey deteriorated during his term, which ended abruptly in April 2022 in response to a motion of no confidence in parliament. The two countries have traditionally been close friends of Pakistan and have previously supported Pakistan when needed. Meanwhile, Pakistan's all-weather friend China remains unhappy with the progress of CPEC projects, which have slowed under Khan. So as Pakistan's economic crisis began to sink into, friends in Islamabad were not as willing to bail out as usual.
Perhaps most notably, Pakistan's relations with the United States plummeted. Washington remains angry about Pakistan's role in supporting the Afghan Taliban, so much so that U.S. President Joe Biden didn't call Khan after becoming president. The decline didn't stop there. Khan went a step further, visiting Russia in February 2022, a move that is bound to anger the United States — exactly the day Moscow began its invasion of Ukraine.
When he was ousted from office in Parliament for a vote of no confidence, Khan further blamed the United States for his downfall. At media and public rallies, he claimed to be the target of a U.S. conspiracy to oust him from power. Khan's strategy was to incite anti-Americanism. Pakistan's mood is to get votes and attract his political opponents — and that worked. In the country's most populous punjab, in the recent by-election, his party won a majority of seats thanks to his fiery speeches and soaring inflation that began during his rule.
Most importantly, Pakistan's strong security apparatus has expanded its role and influence in all sectors, including politics. As we all know, the Pakistani government has come and gone with the approval of the military. However, the high-handed tactics of the security agencies have created a stalemate in the country, preventing it from moving forward on the path of development. Most of Pakistan's problems, including its economic and political uncertainty, stem from this problem. Pakistan's security-focused approach to nearby terrorist groups, for example, has put the country on the Financial Action Task Force (FATF) grey list with economic consequences. Successive governments have struggled to remove Islamabad from the Grey List (and stay away from it).
On the other hand, the new islamabad government, led by Prime Minister Shehbaz Sharif, faces numerous problems, starting with an economic crisis. After widespread economic problems in Pakistan, the Sharif government is negotiating with the International Monetary Fund (IMF) to secure $2 billion in relief funding. However, if the prevailing political uncertainty increases further, it will be difficult to obtain the package from the IMF. Pakistan has reportedly taken several steps to reduce spending, raise energy prices and improve tax revenues, as requested by the International Monetary Fund. But the moves are not popular with the public and could lead to another change of government when elections expire this fall.
Moreover, Pakistan has been moving closer to the IMF as economic challenges have become daunting. Its repeated demands prove that this is not a long-term solution to Pakistan's economic woes.
As the economic crisis continues, the similarities with Sri Lanka are becoming alarming. Like Sri Lanka, Pakistan faces a growing shortage of foreign exchange reserves, limiting its ability to import basic necessities such as food and fuel. Like Sri Lanka, this economic turmoil is mapped to fertile ground for political debate. If the economic situation bottoms out, Pakistan could also fall into mass protests and a leadership vacuum.
Zahid Hussain, a prominent Pakistani columnist, is one of the voices warning pakistan that it must now act to avoid Sri Lanka's fate. "The cause of Sri Lanka's economic collapse is obvious. Due to the shortage of foreign exchange, the country cannot even pay for the import of basic commodities such as fuel. In fact, the crisis has accumulated for many years as the country amasses $51 billion in foreign debt," he wrote for pakistani daily Newspaper Dawn.
"... Many developing countries, including Pakistan, face similar dilemmas. We may not be on Sri Lanka's side yet, but it's not far away because there are some similar symptoms.
Unfortunately, grounded reality tells us that Pakistan is gradually and slowly descending into dire economic and political uncertainty. If Pakistani policymakers continue to ignore the warning signs, as they have always done in the past, things could lead to a crisis similar to what is happening in Sri Lanka. It is time for Pakistan to swallow the bitter medicine of hard economic reforms before it is too late.