Now that the fanfare of the election is over, the new government is about to find out that the crown of power is made of barbed wire. The government is about to inherit a huge host of problems, the most pressing of which is the current crippling economy and complicated foreign policy decisions ahead to take place.
As it stands now, Pakistan’s net international reserves are at one of its lowest points right now. International reserves are negative, there is an external funding gap, and there is a widespread demand to boost the value of the Pakistani rupee, which has depreciated 15 per cent against the dollar over the last seven months. Pakistan’s current account deficit stands at $14 billion, over 5 per cent of the GDP, while its foreign exchange reserves have dwindled to $9.6 billion, enough to cover only two months of imports. This has, once again, carved out a situation where Pakistan has to rely on foreign loans to give it breathing space, and the solution seems to be the International Monetary Fund (IMF) which has always been there to bail Pakistan, yet at a price.
An IMF loan, however, though imperative, comes with its own hurdles and costs, especially for our foreign policy. United States’ Secretary of State Mike Pompeo has warned that the US would closely be watching whether the IMF bails out Pakistan, on the condition that none of those funding goes to Chinese bondholders or China itself. This concern has been raised because of the numerous loans Pakistan has taken from China, as a trading partner for the One Belt One Road (OBOR) flagship project, a project that the US views as China attempting to impose influence over neighbouring countries and potentially knocking off previous US hegemony.
Thus, it seems that Pakistan is stuck in a tug-of-war between the US and China, along with its crippling need for some breathing space money to prevent the economy from collapsing. To accept the IMF loaf with terms and conditions against China would risk our budding relationship with our closest ally, a start that the new government definitely doesn’t want to get off to. Prioritising China, however, comes at the cost of further thawing our deteriorating relationship with the US. If the US opposes this loan on political grounds, it may be the final nail in the already withering US-Pakistan coffin.