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Global Economy

Is Pakistan threatening a Sri Lankan scenario?

According to the United Nations, Pakistan is one of the countries hardest hit by the Ukraine conflict. The country was one of the world's largest importers of Ukrainian grain until the Russian war of aggression escalated in February. The fact that these deliveries are now failing due to the war has had an impact on the roughly 220 million citizens of Pakistan, above all in galloping food prices.

A large part of the population spends at least half of their income on food and drink, and price developments are correspondingly hard on people. In June alone, the inflation rate was around 20 percent. "The crisis is hitting the poorer classes in particular," says Leo Wigger, a South Asia expert at the Candid Foundation think tank, which among other things advises German government agencies.

World Bank is concerned

The World Bank warns that Pakistan is facing a period of economic instability. The country has to spend increasing amounts of money to import essential things such as food or energy sources. As a result, according to analysts, Pakistan's foreign exchange reserves have halved since the beginning of the year, and the country's creditworthiness is falling.

Added to this is the fact that US interest in Pakistan has cooled noticeably after NATO's withdrawal from Afghanistan, explains South Asia expert Leo Wigger. Other classic allies such as Saudi Arabia, Turkey and China also acted with restraint. In particular, China, Pakistan's most important ally, is increasingly annoyed that infrastructure projects worth billions are making little progress.

Lived beyond the means for a long time

Now a 1.2 billion euro loan from the International Monetary Fund (IMF) is intended to cushion the worst of the consequences. But it is questionable whether the measure will be sufficient. In view of constant government crises, decades of corruption and social tensions, many observers have their doubts. "After years of living beyond Pakistan's means, the government is more dependent than ever on the goodwill of the IMF and the associated painful reforms that could in turn exacerbate social tensions," believes Leo Wigger.

Michael Rubin of the American Enterprise Institute think tank, who has advised primarily conservative US governments in the past, warns of a nightmare scenario given Pakistan's nuclear arsenal. "Even military officers are beginning to falter when it comes to making ends meet," the adviser writes in the foreign policy journal The National Interest. This cannot be in the security interests of the USA and its big neighbors China, India and Iran.

Are there any riots?

"The risk of increased unrest is great," Wigger agrees. However, he considers a collapse of social structures to be rather unlikely. After all, crises in Pakistan have been going on for years, and the often predicted collapse has so far not materialized.

"As hopeless as the situation seems, the political actors and the still very diverse Pakistani civil society are just as resilient," Wigger believes. In fact, for example, the general security situation is significantly better than it was ten years ago.

An ex-premier uses the misery

Another political earthquake could well trigger the economic crisis in Pakistan. Ex-Prime Minister Imran Khan has recently understood perfectly how to blame the current government's misery. Just months after his ouster, Khan may be poised for a political comeback.

Two weeks ago, Khan's party won the regional elections in the province of Punjab, which, with a population of 110 million, is considered the economic and political center of Pakistan. Whoever wins the power struggle faces one of the biggest economic crises the country has faced in its 75-year history.

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