Pakistani Economic Crisis and the Necessity for Default

The Nature of the Crisis

Pakistan is said to be suffering from a serious economic crisis. Inflation is currently estimated at over 45 percent according to the Sensitive Price Index (SPI). The current account is sharing a large deficit. Government’s current expenditure significantly exceeds revenue. The debt burden is sky rocketing. Saving and investment rates in the formal economy are low and stagnant.

Despite this there are no signs of mass revolt against macroeconomic mismanagement as is common in Latin America. There are three major reasons for this apparent mass apathy on which the secular elites are capitalizing.

1. Our masses are ideologically disconnected. There is no coherent ideological discourse at the mass level. A mass movement requires ideological underpinning which is absent in Pakistan.
2. A stable client patronage network dominates elite-mass interaction. The masses are divided into micro client groups each dependent on its elite-patron for the promotion of its national interests. These client-patronage groups do not struggle for systemic justice (capitalist or otherwise). No one questions the legitimacy of the prevalent structural relationships. Intra elite conflict merely represents jostling for power within the same constitutional order – as is current tussle between Imran Khan and the PML/PPP election.
3. The economy is divided into a formal and an informal sector with weak, inter sectoral linkages. The vast majority of our people (about tree parent of the labor force according to the latest LFS) do not have direct linkages with the formal economy. They are self-employed and do not participate in capital and money market transactions. The informal economy is thus only marginally effected by the macroeconomic crisis prevalent in the formal economy.

The formal economy is divided into two segments (a) the private formal economy (consisting of corporations and financial institutions) and (b) the stable formal economy. Both segments are organized doing capitalism and both are subordinately integrated within the imperialist order. This imperialist systemic subordination is a major cause of the macroeconomic crisis the formal economy is engulfed in.

Imran Khan’s government intensified the formal economy’s imperialist subordination. His government took more foreign loans during its tenure than were taken by all previous governments during 1947-2018. He surrendered economic sovereignty to imperialism by signing the shameful ESAF 2019-2023 agreement with IMF under an effective sale of our State Bank to imperialist money markets. He drowned the economy in imports. Imran khan turned out to be an imperialist slave. The Muslim League and People’s Party are also imperialist slaves. A change in government will not lead to a change in macroeconomic strategy. The macroeconomy will continue to be subordinated to imperialist markets and imperialist political order.

Steps for Overcoming the Crisis

Overcoming the crisis requires the following two steps, neither of which can be taken by any segment of the current ruling elite’s systemic integration. The absorption of the formal economy within the informal economy and not vice versa. This is necessary to reduce eventually eliminate imperialist subordination, the fundamental cause of the systemic crisis requires.

1. The nationalization of all banks (including Islamic banks and financial institutions and the dismantling of all markets segments of money and capital markets.
2. The issuance of a non-asset based currency, the issuance and distribution of which should be the responsibility of the state. Its quantity and value should not be linked to foreign reserves or gold or any other currency.
3. Nationalization of foreign trade, strict import licensing (limited to import of energy products and machinery). Management of the foreign exchange report and determination of foreign exchange rates by the governments.
4. Imposition of strict credit control and introduction of credit planning.
5. Subordination of the State Bank to the Federal Ministry of Finance and disruption of all SBP links to international financial institutions and global money markets.
6. Strengthening of domestic production and value supply chains.

Debt Default

The second necessary step is the declaration of a debt default. According to Bank of England reports 147 countries have instituted sovereign debt defaults during the last 50 years (1971-2019). Sanctions have never been imposed for defaulting reasons – sanctions are invariably an imperialist tool for political victimization. It is never used on economic grounds.

Pakistan’s external debt and liabilities are approximately $100 billion. Aggregate annual of the revenue budget is absorbed in financing external debt. The fact is that like Sri Lanka, Lebanon, Venezuela which all defaulted after the COVID crisis Pakistan is incapable of servicing its external debt (Bangladesh is on the verge of declaring a debt default).

Therefore, Pakistan should immediately declare a ten year moratorium on external debt servicing for a period of at least ten years. We should internationally cancel all interest payment obligations on the grounds that interest is forbidden in both Christianity and Islam. We should start negotiation with our creditors (both bilateral and multilateral agencies and private banks) for principal repayment linked to export earnings inflow at say 10 percent. We should strictly abstain from the interest based external borrowing with multilateral institutions, banks and foreign government.

Default is routine in capitalist loan market. It is a day to day experience. Our foreign repayment affiliation do not equal even zero point one percent of global debt obligation. Financial markets will take no notice of a suspension of Pakistani debt repayment s they will not be effected by such means. The negative impact of default on foreign exchange valuation can be negotiated if Pakistan reverts to managed exchange rate regime given Pakistan’s geostrategic importance it is most unlikely that sanctions will be imposed. Of course foreign debt inflows will dry out but since they are early absorbed in debt servicing, Pakistan does not need foreign loans.

Unacceptability of Default

No segment of the Pakistani state elite can accept and ever agree to declare default. The PPP/PML coalition have resumed the shameful IMF accord and are going begging throughout the world. Imran Khan in his hypocritical movement for real freedom never mention default nor does he promise to forego foreign begging and loans. Both PTI and PML/PPP regimes have proved to be imperialist slaves. These regimes have been imposed upon us by imperialism and their subordination to imperialist order remains irrevocable. They have internalized capitalist ethics and ideologies. They are nationalist, liberal, humanists and social democrats. The political cultural models they make and the lives they lead strengthens their commitment to imperialist values. Their national interests are originally linked to imperialist order. Shahbaz Sharif locates and Bilawal Bhutto have vast assets invested abroad. Imran Khan’s donors include foreign corporations and both his sons live in England. What can be expected from these quislings?

Sibte Mahdi

Editorial Note (drafts)

With this issue Al-Burhan begins a new reaction. We felt there was a need for this initiative as the English press is hostile to orthodox, …….plan as represented by the forum of the Ulema and the Sufia. The segment of our publication whose working language is English needs exposure to Islamic orthodox and mainstream views.

We are trying to address this need and develop a dialogue with the English conversant groups many of whom we believe are our sincere Muslim brothers. One would like to be aware of the orthodox Muslim viewpoint on social, economic and political issues of national and global importance.

We eagerly await your response to our English column and also invite you to contribute to these pages so that together we combat the modernist and secular attacks on Islamic orthodoxy prevalent in the English Press.

Dr. Muhammad Ameen