Active Stocks
Tue Mar 19 2024 12:41:08
  1. Tata Consultancy Services share price
  2. 4,020.00 -3.01%
  1. Tata Steel share price
  2. 149.90 0.20%
  1. Bharti Airtel share price
  2. 1,229.60 0.37%
  1. Power Grid Corporation Of India share price
  2. 259.95 -1.91%
  1. ITC share price
  2. 410.30 -1.70%
Business News/ Politics / Policy/  Why Pakistan IMF bailout talks matter to India
BackBack

Why Pakistan IMF bailout talks matter to India

Pakistan has often relied on foreign money to tide over its economic problems and, in the years to come, this could mean greater leverage for China

Pakistan Prime Minister Imran Khan. An anti-India sentiment is the ultimate glue that holds the China-Pakistan alliance together. Photo: Getty ImagesPremium
Pakistan Prime Minister Imran Khan. An anti-India sentiment is the ultimate glue that holds the China-Pakistan alliance together. Photo: Getty Images

Mumbai: After more than a month of deliberations, Pakistan’s newly-elected government has decided to seek a bailout package from the International Monetary Fund (IMF). Pakistan’s foreign exchange reserves of around $15 billion are sufficient to cover only two-and-a-half months of imports.

Pakistan, like India, is also beset by its own twin deficit problem—government spending outpacing revenues and imports outpacing exports.

However, its economy has been in much worse shape compared to others in the region and, therefore, it has decided to approach the IMF for a bailout.

This is not the first time in recent years that Pakistan has turned to the fund for help. The latest bailout, if concluded, will be the thirteenth IMF package for Pakistan since 1988. India, on the other hand, has only availed of two IMF packages in the same period, both during the 1991 balance of payments crisis. Bangladesh and Sri Lanka have also taken less assistance from IMF than Pakistan.

Pakistan’s perennial dependence on foreign funds has meant that it is dependent on external donors to stabilize its economy. A 2012 research paper by former IMF advisors Ehtisham Ahmad and Azizali Mohammed, says that years of financial assistance by the US and US-aligned multilateral institutions have left no incentive for Pakistan to introduce structural reforms.

Instead, the government often seems happy to leverage its geographical importance to secure more money and bailouts. This, the authors say, has created a situation of “Dutch disease", wherein inflow of foreign currency and overvaluation of the Pakistani rupee has damaged the domestic industry.

China is also stepping into the role of influential donor for the country. A recent study by the US-based think tank, Centre for Global Development, warned that China’s Belt and Road Initiative (BRI) could raise the risk of sovereign debt default by relatively small and poor countries. China has already upstaged the US as the main source of external funds for Pakistan, and Pakistan’s dependence on China could rise further in the years to come.

China has also been providing cover to Pakistan in international fora. This has raised fears of a China-Pakistan alliance directed against India, with some commentators arguing that anti-India sentiment is the ultimate glue that holds the China-Pakistan alliance together.

China is also investing in other countries around India, which has worried policymakers in India. The example of Sri Lanka’s China’s Hambantota port, which has been handed over to China as debt obligations mounted, only add to such concerns.

Pakistan’s deep economic troubles suggest that India might have to live with increased Chinese influence in Pakistan, in particular, and South Asia, in general. The last time a big power, the US, had roped in Pakistan in its proxy war against the then USSR, sections of Pakistan’s ruling establishment felt emboldened to undertake hostile actions against India.

However, not everyone thinks Pakistan will necessarily pursue an adventurist policy against India with Chinese cover. “Alliances often have restraining effect on smaller partners," said Srinath Raghavan, a military historian and a senior fellow at the Centre for Policy Research in Delhi. “China, because of its investments in Pakistan, would at least have a stake in stability, if not peace. Moreover, China has demonstrated in past instances that it could have a restraining effect on Pakistan."

It is too early to say whether a China-Pakistan alliance will lead to greater or less anti-India activities. But India might need a new strategy to engage with Pakistan’s external donors to mitigate risks arising from a volatile situation in our neighbourhood.

Pakistan’s sorry fate today also has a lesson for the neighbourhood, as it exposes how jingoistic majoritarianism can wreak havoc on the social and economic fabric of a nation.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Politics News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
More Less
Published: 11 Oct 2018, 06:49 AM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App