Navigating the Economic Quagmire: Lessons from Pakistan and Sri Lanka's Turbulent Times

Pakistan and Sri Lanka are two countries that have experienced significant crises in recent decades, ranging from the civil war to political instability to economic challenges.

These crises have had far-reaching impacts on the countries' populations, economies, and political systems, and have raised important questions about governance, conflict resolution, and economic development.

By analyzing these crises and their aftermaths, we can gain valuable insights into the complex challenges facing developing countries today and identify strategies for promoting stability, prosperity, and peace in these regions.

We do have 46 island nations in the world, but only Sri Lanka went down, Why?

Sri Lanka's economic and political crisis can be attributed to a combination of factors that have contributed to a decline in economic growth and investor confidence. Here are some of the key factors that have led Sri Lanka towards recession and economic and political crisis:

• High government debt: Sri Lanka has accumulated high levels of government debt, which has made it difficult for the government to finance public spending and maintain fiscal discipline. This has resulted in a decline in investor confidence and contributed to the country's overall economic instability.
• Political instability: Frequent changes in government and political instability have been major issues in Sri Lanka, leading to a lack of continuity in policies and decision-making. This has had a negative impact on economic growth and investment, as investors prefer stable and predictable environments.
• Dependence on tourism: Sri Lanka's economy heavily relies on tourism, which is a major source of foreign exchange. The COVID-19 pandemic had a severe impact on the tourism industry, with the sharp decline in tourist arrivals leading to a significant drop in foreign exchange earnings and overall economic performance.
• Weak exports: Sri Lanka's exports have been weak for several years, with declining demand for traditional exports such as tea and garments. The country has also been slow in diversifying its export basket, which has led to a lack of competitiveness in global markets.
• High import costs: Sri Lanka is highly dependent on imports for its energy and other needs, and the high cost of imports has contributed to the country's trade deficit. This has put pressure on foreign exchange reserves and contributed to the overall economic instability.
• Corruption and mismanagement: Corruption and mismanagement have been major issues in Sri Lanka, with allegations of embezzlement, fraud, and other forms of financial malpractice affecting public trust and investor confidence. These issues have contributed to the overall decline in economic performance and political stability.

But what went wrong with Pakistan?

Pakistan towards recession and economic and political crisis:

• Balance of payments crisis: Pakistan has faced a balance of payments crisis due to a widening trade deficit and falling foreign exchange reserves. This has led to a significant depreciation of the Pakistani rupee, which has put pressure on inflation and contributed to the overall economic instability.
• Energy crisis: Pakistan has been facing an energy crisis for several years, with chronic power shortages and load shedding affecting industrial production and economic growth. This has led to a decline in investor confidence and contributed to the overall economic instability.
• Political instability: Political instability has been a major issue in Pakistan, with frequent changes in government and a lack of continuity in policies and decision-making. This has had a negative impact on economic growth and investment, as investors prefer stable and predictable environments.
• Terrorism and security concerns: Pakistan has been facing security concerns and terrorism for several years, which has had a negative impact on foreign investment and economic growth. The situation has improved in recent years, but the lingering threat of terrorism still affects investor confidence.
• Corruption and mismanagement: Corruption and mismanagement have been major issues in Pakistan, with allegations of embezzlement, fraud, and other forms of financial malpractice affecting public trust and investor confidence. These issues have contributed to the overall decline in economic performance and political stability.
• Weak exports: Pakistan's exports have been weak for several years, with declining demand for traditional exports such as textiles and leather goods. The country has also been slow in diversifying its export basket, which has led to a lack of competitiveness in global markets.

These factors, along with other issues such as natural disasters, declining remittances from overseas workers, and rising inflation, have all contributed to Sri Lanka's and Pakistan's economic and political crises.

But what's the common thread between them?

The Common and Crucial point here is China's Debt Trap Diplomacy. It refers to a strategy allegedly employed by China, wherein it extends loans to developing countries for infrastructure projects, which those countries may not repay. This results in those countries becoming increasingly indebted to China and potentially being forced to cede control of key assets or resources to China as collateral.

Some critics of China's Belt and Road Initiative (BRI), a global infrastructure investment program launched by the Chinese government in 2013 have used the term. While China has stated that the BRI is aimed at promoting economic development and regional integration, some have raised concerns it may be used to advance China's strategic interests and increase its geopolitical influence.

It's worth noting that there is some debate among experts about the extent to which China is actually engaging in "debt trap diplomacy." Some argue that the risks of debt distress and asset seizure are often overstated and that most BRI projects are commercially viable and mutually beneficial. However, others contend that China has used debt as a tool of coercion in some cases, and that the risks of debt distress and asset seizure should not be ignored.

How has China's debt trap policy impacted Pakistan and Srilanka?

Pakistan and Sri Lanka are both examples of countries that have received significant investments from China through its Belt and Road Initiative (BRI) and have faced challenges related to debt sustainability.

In the case of Pakistan, China has invested heavily in infrastructure projects such as the China-Pakistan Economic Corridor (CPEC), which includes the construction of highways, railways, and ports. While these investments have helped to modernize Pakistan's infrastructure and create jobs, there are concerns that Pakistan's debt burden to China has become unsustainable. According to some estimates, Pakistan's debt to China could reach as much as $62 billion by 2022, and the country is struggling to repay its loans. This has led to concerns that China may use its leverage to gain greater strategic influence in Pakistan, and has also raised questions about the long-term sustainability of China's investments in the country.

In the case of Sri Lanka, the country has been struggling with a large debt burden, and China has been a major lender. In particular, China provided financing for the construction of the Hambantota port, which has been criticized for being financially unsustainable. In 2017, Sri Lanka agreed to lease the port to China for 99 years in exchange for debt relief. This raised concerns about China's intentions in Sri Lanka, and fueled accusations of "debt trap diplomacy."

Overall, while China's investments in Pakistan and Sri Lanka have brought benefits in terms of infrastructure development and economic growth, there are concerns about the long-term sustainability of these investments and the potential for China to use debt as a tool of strategic influence.

Did Russia and Ukraine impact the economic conditions of Pakistan and Sri Lanka?

The conflict between Russia and Ukraine has not had a direct impact on the economies of Pakistan and Sri Lanka, as these countries are not directly involved in the conflict and do not have significant economic ties with Russia or Ukraine.

However, the conflict could indirectly impact Pakistan and Sri Lanka through its effects on global oil prices and international trade. If the conflict were to escalate and disrupt oil supplies from Russia, this could lead to higher oil prices on global markets, which could have a negative impact on the economies of Pakistan and Sri Lanka, as well as other countries that are dependent on oil imports.

Additionally, if the conflict were to escalate and lead to broader economic sanctions or trade disruptions, this could also have negative consequences for countries like Pakistan and Sri Lanka that rely on international trade for economic growth and development.

Overall, while the conflict between Russia and Ukraine has not had a direct impact on the economies of Pakistan and Sri Lanka, its effects on global markets and trade could have indirect consequences for these countries.

What we can learn from Sri Lanka and Pakistan crises? and what are the points which were missed or ignored?

Lessons learned:

• Political inclusion: Both countries have experienced significant crises related to political exclusion and marginalization of certain groups. A key lesson is an importance of promoting political inclusion and ensuring that all groups have a voice in the political process.
• Conflict resolution: The civil war in Sri Lanka highlights the importance of addressing underlying grievances that contribute to conflict. It is important to address these issues through peaceful means and engage in constructive dialogue to resolve differences.
• Counterterrorism strategies: The rise of extremist groups in both countries highlights the need for effective counterterrorism strategies. This includes addressing the root causes of terrorism, building strong law enforcement and intelligence capabilities, and engaging in international cooperation to combat terrorism.

Points missed or ignored:

• Socio-economic disparities: Both Sri Lanka and Pakistan have significant socio-economic disparities, with some regions and populations facing greater challenges than others. Addressing these disparities is important to promote greater stability and reduce the risk of conflict.
• Human rights: Both countries have faced criticism over their records on human rights, including allegations of extrajudicial killings, torture, and suppression of political opposition. It is important to prioritize human rights and ensure that all individuals are treated fairly and with dignity.
• Corruption: Corruption has been a significant issue in both countries and has contributed to political instability and economic challenges. Addressing corruption through effective governance and transparency measures is essential to promote stability and ensure that resources are used effectively and fairly.
• And last but not least China: China provides loans to developing countries for infrastructure projects such as ports, highways, and power plants. These loans often come with high-interest rates and strict repayment terms, and in some cases, natural resources or other assets may back the loans.

While these loans can provide much-needed investment in developing countries, they also pose significant risks.

This can lead to economic instability and dependence on China, which can have broader strategic implications for both the country and the region.

Critics argue that China's debt trap policy is economic imperialism that exploits developing countries and undermines their sovereignty.

Supporters of the policy, on the other hand, argue that it provides much-needed investment and can help to spur economic growth and development in developing countries.

Overall, learning from the crises in Sri Lanka and Pakistan can help us to identify strategies for promoting greater stability and addressing underlying issues that contribute to conflict and unrest.