Pakistan’s Looming Economic Crisis


    Pakistan is facing a deep financial crisis. The Pakistani rupee (PKR) has fallen continuously since 2021 and is currently at a historical low. Pakistan’s foreign exchange reserves are depleting and have fallen by $8.3 billion in the past year. The South Asian nation has been in complicated talks with the International Monetary Fund (IMF); the IMF is willing to support Pakistan under various conditions, including addressing high inflation rates, being transparent about debt it owes to China, and ensuring protection for Pakistan’s most vulnerable populations.

    Pakistan subsequently proposed various taxes, including a “super levy” on large industries, and increasing petroleum prices, which has led to protests across the country. Pakistan has also accepted a loan of $2.3 billion from China, however, this may lead to various geopolitical and economic implications.

    Key Judgement 1: It is highly likely that Pakistan’s debt to China will have serious economic and geopolitical implications over the next 12 months.   

    • In March 2022, Pakistan’s foreign exchange reserves fell by almost $3 billion due to the repayment of external debt. Pakistan has taken out extensive loans from China, Saudi Arabia, and Qatar over the past thirty years.  (source)

    • In addition, Pakistan has billions of USD worth of debt owed to China, all with very high-interest rates. China has recently demanded repayment of $55 million for the Lahore Orange Line Project and expects repayment by November 2023, which Pakistan will likely struggle to pay. (source).

    • There are rumors circulating that Pakistan may cede Gilgit-Baltistan to China in order to help alleviate its external debt. Gilgit-Baltistan is a Pakistani-occupied region of Kashmir. If ceded to China, it would create an easy pathway for China to expand into South Asia. (source)

    Key Judgement 2: It is highly likely that protests against increased fuel prices may turn violent over the next 12 months.

    • In June, the price of fuel increased by one-third after the government of Pakistan slashed subsidies. This was in an attempt to meet the demands of the IMF. (source)

    • Pakistani opposition leaders, including former Prime Minister Imran Khan have called for protests against increased fuel prices. They claim that the government is not doing enough to provide relief to people who are struggling to afford electricity and gas due to the price surge. (source)

    • Throughout the country, people have been vandalizing petrol pumps, burning tires, and protesting en masse against the prices of petroleum. Protests are expected to escalate within the next few weeks. (source)

    Key Judgement 3: It is likely that Pakistan will forge alternative economic ties to alleviate its imminent crisis over the next 12 months.

    • The Pakistani Ambassador to the United States and the Governor of Texas recently met to discuss Pakistan’s economic situation. They discussed forging closer ties across various sectors, including petroleum, agriculture, climate, and technology. It is likely that this relationship will continue. (source)

    • Pakistan and France recently signed an agreement suspending loans of $107 million. These loans will now be repayable over a period of six years with a grace period. France claims the move was to help alleviate imminent health and economic crises across Pakistan. (source)

    • As the IMF set difficult to meet conditions for Pakistan in order for the country to obtain a $6 billion bailout package, it is likely that Pakistan will look towards improving economic ties with more unconventional entities. (source)

    Intelligence Cut-Off Date: 29th of July, 2022

    Taylor Huson
    Taylor Huson
    Taylor is a graduate student obtaining a Master’s degree in Human Rights and Politics at the London School of Economics. She previously graduated with a Master’s degree in International Security from George Mason University and is interested in the intersection of military technology, global security, and human rights.

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