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Why The World Saved Pakistan But Not Sri Lanka? – Free PDF Download

What’s happening?

  • There are many Sri Lankas waiting to happen across continents.
  • Pakistan is one of them. Economic crisis is threatening Pakistan the same as it did in Sri Lanka.
  • In fact, experts have been predicting Pakistan’s bankruptcy for several years now.
  • Pakistan has been facing a forex crisis for quite a long time.
  • It worsened this year with forex reserves managing only a few weeks of imports before the International Monetary Fund (IMF) agreed to revive the 13th bailout package for Pakistan in 30 years.
  • Sri Lanka, on the other hand, failed to negotiate a bailout with the IMF and saw its economy collapse and its President Gotabaya Rajapaksa flee the country.

Pak’s situation worse than lanka

  • Sri Lanka was doing fairly well till a few years ago.
  • Public-policy experts and economists were citing Sri Lanka as an example of success exhorting countries like India to learn the right lessons.
  • Sri Lanka was placed above India on the happiness, hunger and GDP indices.
  • At a book launch event in July 2018, Nobel Laureate Amartya Sen said, “Now India was the second-worst [on socioeconomic indicators in South Asia] and only Pakistan has managed to shield us from being the worst.”
  • The point here is that Pakistan has been economically much worse.
  • Compared to its 13 IMF bailouts, Sri Lanka needed only seven in the past 30 years.
  • As Sri Lanka collapsed, its total foreign debt stood at $51bn. In comparison, Pakistan’s external debt crossed $53bn this year.
  • But then Pakistan’s GDP size is three times bigger than Sri Lanka’s. However, Sri Lanka fared better in GDP per capita than Pakistan, which has a 10 times bigger population size.

  • In March this year, an IMF analysis showed that Sri Lanka’s public debt to GDP ratio rose from 91% to 119% between 2018 and 2021.
  • The same month, the Asian Development Bank (ADB) said Pakistan’s debt to GDP ratio was the highest in the Central Asia Regional Economic Cooperation (CAREC) grouping at 88%
  • for 2020-up from 86% in 2019.
  • At the end of March 2022, Sri Lanka had external debt service payments of $6bn for the remainder of 2022 against foreign reserves of $1.9bn.
  • This was the stage where Sri Lanka imploded.
  • In July, Pakistan’s external debt servicing rose to $10.88bn in the first three quarters of 2021-22 compared to $13.38bn in the entire FY21.
  • Like Sri Lanka, Pakistan has seen a steep rise in oil prices.
  • If Sri Lanka resorted to oil rationing before the tankers stopped docking at its ports in June, ministers in Pakistan urged people to drink less tea to fight the economic crisis.

So, why does Pakistan stand while Lanka falls?

  • The answer lies in the great geopolitical game that the global powers play.
  • It’s about the partners that the two countries have.
  • China is a common partner to both Pakistan and Sri Lanka.
  • But while Pakistan’s partnership has been built over years and involves greater stake for China, Sri Lanka’s is a recent ‘friend‘ and the stakes are not as deeply entrenched as in the former.
  • This is why, as Gotabaya Rajapaksa reportedly said, his request for a line of credit of $1.2bn to China’s President Xi Jinping went unanswered.
  • Pakistan’s other partners have been the US, Saudi Arabia and the UAE.
  • While Sunni Islamic identities drive the deeper ties with Saudi Arabia and the UAE, Pakistan additionally sends its troops to train armed forces in Saudi Arabia.
  • When Imran Khan reached out to Saudi Arabia, the UAE and China for financial help after coming to power in 2018, he got $3bn in balance of payments support from Riyadh and another $3bn from UAE.
  • The next year, China extended $3.5bn in loans and grants to bolster Pakistan’s forex reserves.
  • The US, which is also the largest shareholder in the IMF, has helped Pakistan from time to time when it comes to the fund’s programme reviews.

Why is Pakistan the favourite?

  • Its equation with the US developed against the backdrop of the Cold War.
  • India was also a factor in Pakistan’s engagement with its partners.
  • The US was sceptical of India, which as a socialist democratic country tilted towards Soviet Russia.
  • China was already a communist country.
  • The US pampered Pakistan to deepen its strategic reach and also to check India.
  • China, meanwhile, has always wanted to encircle India. Pakistan was a perfect foil.
  • Pakistan entertained China with a territorial gift in Pakistan-occupied Kashmir’s Saksgam Valley.

  • Recently, a Pakistani newspaper reported that there is tacit coordination that the international community will not let Pakistan become a Sri Lanka.
  • When Pakistan turned to Saudi Arabia and the UAE seeking another bailout, it was reportedly advised to take the IMF route.
  • This explains why the IMF not only approved a bailout package but also increased the amount to $7bn from the earlier agreed $6bn.

Terror advantage for Pakistan

  • Besides its geostrategic location, terrorism actually offers Pakistan an advantage.
  • The stakes are so high for the West that it can’t simply let the country collapse.
  • Consider what all may happen if Pakistan collapses- – most of the terror outfits including Taliban and Islamic State are linked to the Pakistan Army’s Inter-Services Intelligence (ISI).
  • A collapse of Pakistan will let loose a host of terror groups posing a graver threat to global security.
  • In the worst-case scenario, Pakistan may become one or many Afghanistans.
  • This threat to global peace is Pakistan’s insurance.
  • Sri Lanka has been much higher on social indices to pose such a threat and, hence, warrant that kind of mollycoddling.

Q) Which among the following can not be called an anti-inflationary measure?

  1. Raising the Bank Rates
  2. Raising the Reserve Ratio Requirements
  3. Purchase of securities in the Open Markets
  4. Rationing of the Credit

 

 

 

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