We are aware that Sri Lanka has no fuel, inadequate food and medical supplies. Critical medical surgeries are being cancelled and daily power blackouts taking place for long hours, with wide scale protests by common citizens on streets of main cities paralysing business activities and routines of many.
The questions is why did China not come to save or bail out Sri-Lanka if it really wanted to emerge as the regional super power?
Remember, China has already taken over Sri Lankan deep seaport on 99 years lease due to Sri Lankan default on its debt repayment. Was China interested to acquire more strategic assets from Sri Lanka or it is due to the fact that it had already taken its port and had no other strategic interest in it.
Some visible but simple comparison is made in this article to help understand where we stand and what should be done by Pakistan to avoid worsening foreign debt crisis. Please note that Sri Lanka has debt to GDP of 111 percent and Pakistan has debt to GDP of 82 percent.
Sri Lanka had political movements taking place internally and it held elections for regime change as mass political street movements were seen, and the new government had promised for lowering taxation and offer subsidies for people. The governance structure was weak with many loopholes for corruption. Foreign remittances were declining and imports of luxury items were at a high causing undue pressure on the current account deficit (CAD), widening gap in the balance of payments.
International credit agencies and economic pundits had already pointed out already that this was unsustainable. On top of that there was huge unproductive expenditure, including the cost of holding elections. However, the emotionally charged people did not give much attention to the consequences despite Sri Lankan literacy rate of over 92 percent, which is close to double the literacy rate of Pakistan.
The mounting CAD, high inflation along with lower tax to GDP rate and no fiscal measures taken by their governments, topping up to the fact that China did not come forward to help, Sri Lankan rupee devalued and lost its buying power. Foreign investors also fled the country for many reasons, including currency devaluation ($1/Sri Lankan rupee 320) and credit default risk.
As apparent and unfortunate it may be, some similarities are building up in Pakistan as well. Such as increasing CAD, lowering foreign remittances, low to none foreign direct investment (FDI), foreign portfolio investment (FPI), and Chinese loans. Despite claims and lapse of three crucial weeks, China has neither come forward with any help nor has the country rolled over its deposit/debt of almost $3 billion, despite its assurances and repayment. Rupee is weakening, political movement for immediate fresh elections building up, inflationary pressure rising, and slowing economic activity is also slowing GDP growth.
China spent massively on building China-Pakistan Economic Corridor (CPEC) infrastructure. The expenditure is a foreign currency debt that too not in Yuan but in $14 billion. The total Chinese debt in dollars to Pakistan including safe deposit was about $18 billion, which is almost 20 percent of total external debt of Pakistan. Additionally, China increased its export to Pakistan in many areas, including technical or military assistance just the way it had done with Sri Lanka.
It is highly recommended that our political parties (including those in government and those on the roads), as well as the emotionally charged public, business owners, and overseas Pakistanis take prudent proactive measures for the benefit of Pakistan’s future and sovereignty.
Those measures include:
Drastically lowering the import bill
Responsible usage of oil and conservation of energy and other resources
Stopping usage and import of luxury items for the next few years
Making efforts to export to Europe and America, and searching for other markets for our products
Increasing IT services and textile exports, and exploiting the immense opportunity from the fact that the world is looking for alternate supply chains to move away from China and Russia
Impressing upon overseas Pakistanis to send remittances and invest in Pakistani bonds/sukuks and Roshan Digital Accounts to get higher dollar return on term deposits
Mentally accepting that lowering taxations for next few years will not be in the interest of Pakistan
Impressing upon federal and provincial governments to lower their expenditures ie take fiscal measures
Pressing the government not to spend too much on building new infrastructure and unproductive schemes for the next few years
Pressing all political parties to neglect differences and bring harmony among themselves to help people and businesses survive in this difficult time of record high inflation around the world
All Pakistanis should think rationally and not pressurise the present government to take politically motivated popular but unwise decisions as done by Sri Lanka such as lowering prevailing taxation rates and extending non-targeted subsidies, as well as undertaking unnecessary expenditure including holding fresh elections, that too before expiry of term etc.
These decisions can result in inviting additional financial pressure and distract peoples' attention from generating business and economic activities.
It has been seen that economic crisis aggravates and worsens in the tenure of caretaker government, as witnessed in the past wherein the rupee depreciated by over 21 percent compared to the time when the PML-N completed its previous constitutional term of four years.
It was also witnessed that business activity was slowed and FPI was withdrawn and investors (foreign and local) waited for months to find out about policies of new incoming government for different business sectors, and same worsened the economic affairs. Pakistan at present needs foreign remittances, continuity of business activity, in addition to lowering expenditure and increased export to drive through successfully from this economic meltdown building up around the world and to avoid higher inflationary pressure.
The present Prime Minister of Pakistan who has been constitutionally bestowed trust by majority in the National Assembly, luckily holds a demonstrable past record and reputation of being a “strong administrator and doer”. He has been seen making all out efforts from day one in office to get some relief for people and working with teams to obtain financial assistance from all available sources, including holding discussions with multilateral donors and friendly countries like Saudi Arabia and China.
Our Finance Ministry is also planning to further negotiate rescheduling of some debt repayments, undertaking new commercial borrowings on easy market terms, and issuance of new foreign currency bonds to help Pakistan and Pakistanis get some breathing space.
Pakistan should learn from the mistakes of other countries and evaluate the problems faced by cash strapped Sri Lanka, despite it being in a stronger economic position than Pakistan a couple of years back.
No country will come to help us if we won’t self-discipline and help ourselves. Even God helps those who help themselves.
The writer is an expert on governance and sustainability