Pakistan’s Escalating Economic Crisis

Pakistan’s near-crippling economic crisis appears to be reaching a tipping point. The nation’s foreign exchange reserves are approaching the danger zone, reaching a low of $5.56 billion this month. Inflation has run rampant with the year-on-year rate for perishable food at 56%. Mounting debt and political instability are also threatening to compound the dangers facing Pakistan.  Added to these ailments is the aftermath of last summer’s apocalyptic floods that killed 1,700 people. Pakistan’s government has not managed to halt the economic tailspin or even stabilize it. Islamabad’s latest move is centered on saving energy and reducing costs tied to energy production and consumption. The plan is seen as a knee-jerk reaction which reinforces a growing perception among Pakistanis that the government of Prime Minister Shehbaz Sharif is powerless to turn the tide.

The lack of foreign reserves is a major problem and the government recognizes it. Pakistan is looking abroad to Saudi Arabia for help to fortify its foreign reserves and stave off default. General Syed Asim Munir, Pakistan’s army chief of staff is in Saudi Arabia at the moment in his first overseas visit. Munir will visit the UAE next. The relationship between Pakistan and Saudi Arabia goes back over fifty years and is historic in nature. It is no surprise that Munir selected Saudi Arabia as his first stop given the close defense ties between the two countries. Given the growing economic troubles in Pakistan, it would not be outside the realm of possibility for Munir to request additional Saudi economic relief at the behest of his civilian leaders. Or at least pave the way for an official request to come at some point in the near future.

The government is hoping its energy plan succeeds in buying the time needed for Pakistan to rebuild its foreign reserves. Saudi Arabia and the IMF provide Islamabad with the best short-term opportunities for relief. If neither suitor can be successfully courted, Pakistan will find itself facing the very real prospect of a Sri Lanka-like economic collapse at some point in the coming months.

Chinese Activity In Sri Lanka Is Raising Concern

With Sri Lanka bankrupt and remaining politically unstable, China looks prepared to move in and take advantage of the situation. Earlier in the week a Chinese flagged vessel arrived in Sri Lanka’s Hambantota Port, a facility constructed by Sri Lanka through Chinese loans. The port never lived up to its potential, Colombo defaulted, and China took over port operations in 2017 with a 99-year lease. Since then, there has been growing concern that China will use the infrastructure it helped build in Sri Lanka, and other nations around Asia, for military purposes. In fact, even though the ship that arrived this week is called a scientific research vessel by Beijing, its real purpose is more nefarious. The Yuan Wang 5 is a PLAN ship used to track satellites and missiles. Hambantota is of little use to Sri Lanka, but it can be used for military purposes and Yuan Wang 5’s arrival could signal a change in China’s stance in the aftermath of heightened tensions with the US over Taiwan as well as domestic and economic concerns at home.

There has always been concern in the West over China’s heavy infrastructure investments across the globe since the early 2000s. Airports, seaports, roads and bridges have been built in many countries through Chinese loans. With its foreign debt crisis mounting, China appears set to assume operational control of many facilities. Sri Lanka might only be the beginning. This infrastructure can quite easily be modified to handle military roles in areas of the world where China has never had a military presence before. Aside from Asia, China has also invested heavily in areas of the Middle East, Africa and is making inroads into the South Pacific. The growing presence and influence in places such as the Solomon Islands and Kiribati are especially alarming and hold significant military implications in the Pacific for the United States and may of its allies in the region.

The process might be commencing in Sri Lanka with the arrival of Yuan Wang 5, but in all likelihood we will see considerably more activity in other locations around the world soon.

Sri Lanka Update 14 July, 2022

In the space of one week Sri Lanka has turned into a real-life reality TV show. If the situation weren’t so dire for Sri Lankans, I’d dare label the situation there as quality entertainment. Unfortunately, living conditions on the island continue to deteriorate as the political situation grows increasingly muddled. Even more alarming is the frail state of Sri Lankan society. Make no mistake about it, the island nation is on the verge of a complete collapse.

Sri Lankan President Gotabaya Rajapaksa’s aircraft has landed in Singapore. After departing Colombo, Rajapaksa flew to the Maldives before winging his way east. There are reports surfacing that Jeddah will be his next destination. The purpose behind his tour could be to garner international support for an effort to remain in power. The president has not submitted a letter of resignation as promised, meaning he is still the rightful leader of Sri Lanka. Parliament is moving to strip him of his presidential powers though. The appointment of Prime Minister Ranil Wickremesinghe as acting president only made the situation worse and incensed protesters. His office was taken over by protesters, leading to a number of clashes between security forces and civilians. A state of emergency was declared, as well as a curfew. Right now, Colombo has settled into an uneasy calm. Protesters have withdrawn from the presidential residence and Wickremesinghe’s office but remain in the president’s office.

Until the political situation stabilizes, negotiations between the government and the IMF are on hold. An agreement with the IMF is essential to lay the groundwork for an economic recovery. However, as it stands right now, there will be no progress made on this front until the vacant presidency seat is filled and calm returns to Sri Lanka. It could be a long time until that happens as the island nation remains in turmoil without an end in sight.

Sri Lanka Is Coming Into Play

Uncertainty is growing in Sri Lanka as the nation’s top political leaders have not been heard from in the aftermath of Saturday’s takeover of the presidential residence and offices. The prime minister’s own residence was overrun by protesters as well. Since Saturday’s unrest, Sri Lanka’s President Gotabaya Rajapaksa has not been heard from. Prime Minister Ranil Wickremesinge has gone radio silent too. There have been reports the president plans to resign on Wednesday, however Rajapaksa has not addressed the reports or his intentions. At the present time it is unclear who, if anyone, is leading Sri Lanka. The longer Rajapaksa remains incommunicado, the greater the chances are of a vacuum forming in Colombo. Opposition leaders are trying to determine if Rajapaksa will in fact resign on Wednesday, and if so, what will the nation’s new government look like. At first glance the speaker of parliament appears to be the probable choice to lead the nation after Rajapaksa’s departure, yet it is unclear what meetings are going on behind the scenes.

Events over the weekend make it clear Sri Lanka is just about in play on the geopolitical chessboard. Whoever takes the reins of power in Colombo next will be faced with the daunting task of preventing the country from careening off the cliff into economic oblivion once and for all. To stop this from happening, large amounts of financial and material aid will be needed. Unfortunately for Sri Lanka, its moment of need comes in the midst of global instability brought on by the Ukraine war and subsequent surging energy prices. India, which has been Sri Lanka’s guardian angel of sorts for a long time, has already contributed billions of dollars in an effort to keep the nation afloat. Yet more funds, fuel and food will be needed in the coming weeks and months.

Should India fail to stabilize Sri Lanka, the door will open for China to move in and attempt to save Sri Lanka while at the same time dragging the island nation inexorably into Beijing’s sphere of influence. Attention should be locked on Sri Lanka and the entire Indian Ocean region in the upcoming week. Things are happening there which will have a significant effect on regional security as well as the growing India-China rivalry.

Sri Lanka’s Prime Minister Claims National Economy Has ‘Collapsed.’

Sri Lanka’s prime minister has told that nation’s parliament that the national economy has, for all intent and purposes, collapsed. Ranil Wickremesinghe informed lawmakers that Sri Lanka is “facing a far more serious situation beyond the mere shortages of fuel, gas, electricity and food. Our economy has completely collapsed.” Wickremesinghe’s remarks did not bring any new developments to light. In fact, the rather new prime minister’s words seem intended to remind lawmakers and his critics that the task of rebuilding Sri Lanka’s economic foundation will take time and much effort. After being in power for roughly one month, opposition party politicians are attempting to lay blame for the economic collapse upon Wickremesinghe’s shoulders. As the nation slides deeper into economic malaise, the politicians are attempting to cover their own backsides and assess blame upon others.

The collapse of the national economy came about at least partly due to a perfect storm of circumstances. Heavy debt, loss of tourism revenue, a foreign currency crisis and other pandemic-related impacts, as well as the soaring costs of commodities are the main ingredients of Sri Lanka’s economic nightmare. The nation is no longer able to buy imported fuel, even for cash, due to the heavy debt owed by Ceylon Petroleum Corporation. There are no nation-states or supranational bodies willing to provide fuel, creating significant fuel shortages.

The Sri Lankan government plans to call India, China and Japan to a donor conference in early August in an attempt to increase foreign financial assistance. An interim budget will be presented around the same time. This is hoped to help Sri Lanka’s position in negotiations with the IMF. August will be when geopolitics takes on a broader and more significant position in Sri Lanka’s economic crisis. India and Japan will seek to raise their influence with Colombo while simultaneously reducing China’s influence. India and Japan, as Quad members, have political and military incentive to work together and push back China’s inroads in Sri Lanka. Beijing is attempting to move deeper into the Indian Ocean and establish basing rights for Chinese warships in an area historically regarded as the Indian sphere of influence.