Pakistan at Crossroads: Navigating Terrorism, Climate Crisis, and Debt Challenges

In the complex landscape of global challenges, Pakistan finds itself under intense scrutiny for multiple reasons. From its persistent inclusion in the FATF’s grey list since 2018 due to concerns about terrorism financing to grappling with the profound impacts of climate change and environmental degradation, Pakistan faces a precarious future. The country’s vulnerability to climate-related threats, projected to slash its GDP by 18 to 20% by 2050, compounds its economic challenges. Additionally, an external debt crisis further jeopardizes Pakistan’s macroeconomic stability, requiring substantial inflows to meet repayment obligations. This article delves into these critical issues, exploring the statistics and underlying factors that contribute to Pakistan’s vulnerabilities on the global stage.

Pakistan is under global pressure for various reasons, such as:

Its involvement in funding and supporting terrorism, which has led to its inclusion in the FATF’s grey list since 2018, and the possibility of being blacklisted by the FATF if it fails to comply with the 27-point action plan to counter terror-financing and money laundering.

Its vulnerability to the impacts of climate change, environmental degradation, and air pollution, which are projected to reduce its GDP by at least 18 to 20% by 2050, and to stall its progress on economic development and poverty reduction.

Its external debt crisis, which poses a threat to its macroeconomic stability and fiscal sustainability, and which requires significant inflows from bilateral and multilateral sources to meet its repayment obligations.

These are some of the major challenges that Pakistan faces in the global arena, and which may affect its relations with other countries and its role in the region.

Here are some stats, figures, and values for the above three factors:

For the FATF grey list, Pakistan was on the list from June 2018 to October 2022, when it was removed after completing all the requirements of the action plans. Pakistan had to implement 27 reforms to strengthen its anti-money laundering and counter-terrorism financing regime. Pakistan also had to pay a high cost for being on the grey list, as it faced difficulties in accessing international markets and loans, and suffered reputational damage. According to some estimates, Pakistan lost about $38 billion due to being on the grey list.

For the climate change impacts, Pakistan is one of the most vulnerable countries to the effects of global warming, such as rising temperatures, melting glaciers, erratic rainfall, floods, droughts, and sea level rise. These effects pose serious threats to Pakistan’s water, food, and energy security, as well as its human health and biodiversity. According to the World Bank, climate change could reduce Pakistan’s GDP by 18 to 20% by 2050, and push millions of people into poverty.

For the external debt crisis, Pakistan is facing a huge challenge of meeting its debt obligations, as its foreign exchange reserves are dwindling and its current account deficit is widening. Pakistan’s total external debt and liabilities stood at $126.3 billion as of December 2022, which is about 36% of its GDP. Pakistan has to repay $77.5 billion in external debt from April 2023 to June 2026, which is a hefty amount for a $350 billion economy. Pakistan also has to pay $7 billion to the IMF in the next two years, as part of its bailout program. Pakistan’s external debt servicing consumes about 40% of its export earnings, leaving little room for development spending and social welfare.

There are many possible reasons why Pakistan is so weak in these three areas for the last many decades, but some of the common factors are:

Terrorism: Pakistan has been a victim and a sponsor of terrorism, which has undermined its security, stability, and development. Pakistan has faced numerous terrorist attacks from various militant groups, such as the Tehreek-e-Taliban Pakistan (TTP), the Islamic State (IS), and Baloch separatists, which have killed thousands of civilians and security personnel, and damaged its infrastructure and economy. Pakistan has also supported and harbored terrorist groups, such as the Afghan Taliban, the Haqqani network, and Lashkar-e-Taiba (LeT), which have waged war against its neighbors, Afghanistan and India, and threatened regional and international peace. Pakistan’s involvement in terrorism has isolated it from the international community, and subjected it to sanctions, pressure, and scrutiny. Pakistan’s support for terrorism has also backfired, as some of the groups have turned against the state and its interests, and have radicalized and mobilized segments of its population. Pakistan’s weakness in terrorism is partly due to its strategic and ideological calculations, which view terrorism as a tool to achieve its interests and objectives in the region, and partly due to its institutional and operational limitations, which prevent it from effectively countering and eliminating the terrorist threat.

Climate change: Pakistan is one of the most vulnerable countries to the effects of global warming, such as rising temperatures, melting glaciers, erratic rainfall, floods, droughts, and sea level rise. These effects pose serious threats to Pakistan’s water, food, and energy security, as well as its human health and biodiversity. Pakistan’s weakness in climate change is partly due to its geographic and demographic factors, which make it more exposed and susceptible to the climate change impacts, and partly due to its governance and policy failures, which hinder its adaptation and mitigation efforts. Pakistan has not invested enough in developing and implementing a comprehensive and coherent climate change strategy, which would address the root causes and the consequences of the climate change challenge. Pakistan has also not mobilized sufficient resources and support from the domestic and international sources, which would enable it to cope with and combat the climate change crisis.

External debt: Pakistan is facing a huge challenge of meeting its debt obligations, as its foreign exchange reserves are dwindling and its current account deficit is widening. Pakistan’s total external debt and liabilities stood at $126.3 billion as of December 2022, which is about 36% of its GDP. Pakistan has to repay $77.5 billion in external debt from April 2023 to June 2026, which is a hefty amount for a $350 billion economy. Pakistan also has to pay $7 billion to the IMF in the next two years, as part of its bailout program. Pakistan’s external debt servicing consumes about 40% of its export earnings, leaving little room for development spending and social welfare. Pakistan’s weakness in external debt is partly due to its structural and cyclical factors, which affect its balance of payments and fiscal position, and partly due to its political and economic mismanagement, which undermine its growth and stability. Pakistan has not diversified and expanded its export base, which remains dependent on low-value and low-quality products, such as textiles and rice. Pakistan has also not curbed its import bill, which is driven by its consumption and investment needs, such as oil and machinery. Pakistan has also not reformed its tax system, which is plagued by low collection and high evasion, resulting in low revenues and high deficits. Pakistan has also not improved its business environment, which is hampered by corruption, inefficiency, and insecurity, deterring domestic and foreign investment.

In conclusion, Pakistan stands at a critical juncture, grappling with multifaceted challenges that reverberate on the global stage. The repercussions of its involvement in funding and supporting terrorism, as evidenced by its tenure in the FATF’s grey list, underscore the urgency of comprehensive reforms to counter terror-financing and money laundering. The toll of this association, both financially and reputationally, emphasizes the high stakes for Pakistan’s international standing.

Simultaneously, Pakistan’s vulnerability to climate change paints a dire picture for its future, with projections indicating a substantial reduction in GDP by 2050. The World Bank’s warning about the potential push of millions into poverty necessitates a strategic and concerted effort to address environmental concerns, ensuring the security of water, food, and energy resources.

Compounding these challenges is the looming external debt crisis, threatening macroeconomic stability and fiscal sustainability. With a formidable repayment burden and limited fiscal space, Pakistan must navigate a precarious path to secure bilateral and multilateral support. The necessity to repay substantial amounts, particularly to the IMF, underscores the urgency of financial prudence and structural reforms.

Examining the root causes behind Pakistan’s struggles reveals common threads across the three domains. Terrorism, both as a victim and sponsor, has entangled Pakistan in a web of security challenges, isolating it internationally and impeding development. In the realm of climate change, governance and policy failures compound geographic vulnerabilities, necessitating a robust strategy and resource mobilization.

The external debt crisis, driven by structural and cyclical factors, reflects political and economic mismanagement. Pakistan’s failure to diversify its export base, curb import bills, reform its tax system, and improve the business environment underscores the need for systemic changes to foster growth and stability.

In essence, Pakistan’s journey through these challenges demands a comprehensive and integrated approach. Strategic reforms in counter-terrorism measures, climate change adaptation, and economic policies are imperative. The international community, too, has a role to play, offering support and collaboration to help Pakistan navigate these complex issues. The path ahead is fraught with obstacles, but with concerted efforts, Pakistan can surmount these challenges and redefine its role on the global stage.