Pakistan Needs a Plan

Noah Smith at Noahpinion: Pakistan is a vast country of 231.4 million people. It’s one of only nine countries in the world with nuclear weapons. It’s located in South Asia, which is now one of the world’s most dynamic and fast-growing regions. It has generally favorable relationships with both the United States and China. It has a long coastline in a generally peaceful region of the ocean. It has plenty of talented people, as evidenced by the fact that Pakistani Americans, on average, out-earn almost all other ethnic groups in the U.S.

And yet despite these natural advantages, Pakistan is one of the world’s biggest economic basket cases. It’s a poor country, and its income is growing only very slowly; it has now been passed up by India and Bangladesh, despite starting out significantly richer:

If recent growth rates hold, Pakistan is projected to fall far behind its South Asian peers.

And it gets worse. Pakistan isn’t just poor and stagnant; it’s also in a huge amount of debt. In order to make its citizens feel just a little less poor, Pakistan has borrowed quite a lot of money over the past few decades. Mostly, this money was borrowed from the International Monetary Fund.

But because its economy is poor and stagnant and it’s not very good at collecting taxes, Pakistan generally hasn’t been able to pay the money back. Its solution has been to borrow even more money from the IMF in order to cover the debt that it already owes. As you might expect, this strategy led to Pakistan’s foreign debt to increase relentlessly over the years.

More recently, though, Pakistan started borrowing a lot of money from other countries as well — from Saudi Arabia and UAE, but especially from China. Much of the debt from China was related to the Belt and Road project, which was supposed to build new high-quality infrastructure in Pakistan, but…didn’t.

Now Pakistan, like many of the Belt and Road borrowers, is discovering that all those Chinese loans weren’t contingent on whether the projects actually worked out. Shehad Qazi, managing director at China Beige Book, explains:

And Brad Setser provides some additional context, declaring that “Pakistan’s leaders should panic a bit more.”…

Read the whole article here.