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The drying Pakistani piggy bank - Implications

Pakistan & Saudi - Long time pals

For the longest time Pakistan had exceptional camaraderie with the Saudis. First seen during the Saudi support to Pakistan in the 71 war where the Saudi's criticized India's actions and extended support to Pakistan, the partnership has subsequently grown to include loans, ammunition, and more. Pakistan, to its credit has tried to repay the favour with armed personnel whenever necessary.

But things are gradually changing. Saudi's oil heft is slowly crumbling as a new price setter for oil emerges via shale, and demand for the once coveted crude plummets world over. More importantly, its leaders have had the foresight to understand that crude will be a sinking ship from here on. [ If you're interested in reading more about Saudi, we had covered US - Saudi relations in extensive detail in an earlier piece, and Saudi - Russia relations in another piece here.]

Suffice to say that the changing geo-political environment, increased financial stress, and decreasing benefits of maintaining a costly friendship with Pakistan is making Saudi gradually cut ties. The intent was made even more clear when the Saudi crown prince MBS refused to meet with General Bajwa when he visited Saudi for a meet.

Pakistan's financial position

Pakistan's external outstanding debt has been balooning since the late 2010s, standing at a whopping 11658bn PNR, with an addittional 22477 of Domestic debt. To make matters worse, most of its external debt is denominated in US dollars, exacerbating the impact of the debt on the Pakistani economy. (For Reference, the USD-PNR rate has moved from 121 in FY18 to 166 in FY20)

At a 98.2% Total Debt to GDP, to say that the state of the economy is shaky would be putting it gently.

But why do we care about Pakistan? Well, a failing state anywhere in the world is bad because irrespective of the leanings of the government, the (mostly) innocent citizens suffer. The problem is compounded for India, because not only is this failing state on our border, but it also has a strong nuclear arsenal, flourishing terrorist organizations who could potentially misuse the arsenal if the state falls, and another neighbour to the north, who would willingly extend help to the country - ofcourse for its pound of flesh.

Implications of the drying piggy bank

China has been quite blatant in using its economic might in claiming its pound of flesh. It did it with Sri Lanka and their port to our South, Pakistan and their port to our west and continues to cement similar deals and relationships with countries on our periphery. With one of its oldest allies parting ways with Pakistan - thereby curbing an important source of funds, an opportunity opens up for China, one that it would be more than willing to take.

There will be a cost to pay ofcourse, perhaps in the form of a key military port/asset, or support on the global stage. But irrespective of what it is, it will be something that India will need to monitor closely, especially in the backdrop of growing Chinese aggression on our northern borders.


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