Pakistan Conundrum – Islamabad’s economic collapse won’t be good for India

Source: The post is based on the article “Pakistan Conundrum – Islamabad’s economic collapse won’t be good for India” published in The Times of India on 4th February 2023.

Syllabus: GS 2 – India and its neighbourhood- relations.

Relevance: About Pakistan’s economic crisis.

News: Recently, the IMF review mission rejected Pakistan’s debt management plan and demanded a steep increase in electricity tariffs to restrict subsidies. In response, Pakistan’s PM agreed to implement the harsh conditions.

What is the status of Pakistan’s economic crisis?

Pakistan is in the midst of a deep forex crisis with reserves down to just $3. 09 billion as of January 27. This can cover only 18 days of imports. Thus, Pakistan desperately needs to complete the pending ninth review of the IMF to avoid default.

Why Pakistan’s power sector is a cause of concern?

Pakistan’s power sector has a) unsustainable subsidies, b) poor transmission, c) lack of accountability, c) privatisation of the power sector led to the creation of 12 local distribution companies that mostly provided employment to military retirees, and d) The government is also paying more than Pakistani Rs 1 trillion as Tariff Differential Subsidy.

Why does India need to worry for Pakistan’s economic crisis?

Pakistan is also facing a new spate of home-grown terrorism. A total collapse of the Pakistani government could see the entire stretch from the Iran-Afghanistan border to Lahore becoming an extremist hotbed.

This will complicate India’s security challenges and lead to an even greater Af-Pak problem than the one the world has faced.