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Tuesday, October 9, 2018

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Be Prepared for an India-Pakistan Limited War

By Nishank Motwani

Why is there an assumption that nuclear weapons would preclude a limited conflict between India and Pakistan?

Nuclear strategy and deterrence in South Asia will play by its own rules. As obvious as this statement is, the problem is that most of the literature on the nuclear strategies and postures of regional nuclear powers is seen through the lens of the Cold War. This hangover imposes the experiences of the United States and the former Soviet Union on smaller nuclear weapons states and fails to acknowledge that the calculations and choices of India and Pakistan are fundamentally distinct. Because of the assumption that the strategic rivalry between India and Pakistan will largely mirror that of the superpowers, it is unsurprising that the strategic changes taking place on the subcontinent are overlooked.

What, exactly, is changing? Based on fieldwork, I argue that small but significant shifts in Indian and Pakistani strategic thinking point to the viability of a limited conventional war under a nuclear threshold. The interviews reaffirmed that this trend had gained traction in some sections of the strategic communities in New Delhi and Islamabad, increasing the likelihood of a short, sharp, but limited conflict. The potential ramifications of a war between the South Asian rivals mean that any such change in the strategic landscape should command serious attention.

Recent developments suggest that there is scope for a limited conflict under the nuclear threshold. Speaking at a press conference in January 2018, Indian Army Chief Bipin Rawat stated that India would not be restrained from responding to Pakistani aggression and questioned Islamabad’s red lines for nuclear first use. Unsurprisingly, a Pakistani military spokesperson invited New Delhi to test its resolve and cautioned Rawat against taking any military action. While the rhetoric between them follows an old playbook, the status quo on the subcontinent is not impermeable to change.

Tensions, Challenges, and Opportunities

What has held India back from initiating a limited conflict? The architect of Pakistan’s rationale for introducing short-range tactical nuclear weapons (TNWs), General Khalid Kidwai of Pakistan’s Strategic Plans Division, reasoned that TNWs would remove India’s ability to wage limited war. This need, he said, was urgently felt across Pakistan’s military establishment due to India’s growing conventional military superiority and its drive to modernize its military hardware. Yet it seems that Pakistan’s moves to permanently close the space for limited war have instead energized and prompted significant changes in India’s conventional military doctrine. In 2004, the Indian Army concluded that its defensively oriented doctrine, which it had maintained since 1947, was no longer suitable to respond to Pakistani threats at the conventional and subconventional levels. Although not formally in print, in April 2004 the Indian Army adopted a doctrine known as “Proactive Military Operations” or “Cold Start,” which it has been implementing ever since. This doctrine envisions rapid mobilization of integrated battle groups (IBGs) to enable a series of surprise but shallow offensives into Pakistan. Such offensives would seek to achieve limited objectives without triggering a nuclear response and occur before international pressure could come into play to halt India’s military operations.

Certain changes on the Indian side underscore small but notable shifts that have been taking place over the past few years and are designed to circumvent Pakistan’s lowering of the nuclear threshold via TNWs. New Delhi believes that the Pakistani military establishment has continued to calculate that it can sponsor terrorists to target India without the fear of reprisal attacks due to the belief that its first strike nuclear posture prevents India from taking military action. For Indian strategists, the lack of an Indian military response following the assaults in Mumbai in 2008 and Pathankot in January 2016, among others, reinforced the notion that New Delhi prefers strategic restraint. This restraint arguably reached its shelf life on September 18, 2016, when Pakistani militants killed 19 Indian soldiers in the Indian state of Jammu and Kashmir. On September 29, 2016, at a rare joint press conference at the Ministry of External Affairs, the Indian director general of military operations briefed the media about an Indian Special Forces operation against militant camps across the Line of Control (LoC) in Pakistan-administered Kashmir. Although Pakistan denied India’s claim that such an attack occurred, an independent BBC investigation confirmed that a covert operation of some sort had taken place. More recently, the Indian government released video footage of this operation.

India’s decision to retaliate challenges Pakistan’s view that its first-strike nuclear posture, together with its arsenal of short-range TNWs, compels India to eschew military action. Despite their limited deterrence value, India’s tactical strikes were packaged to convey the existence of a political will to respond to terrorist attacks traced back to the Pakistani state. Concurrently, the military action also helped to assuage public opinion that is increasingly demanding the political leadership in New Delhi punish Pakistan. But, as public opinion gets stronger, any government in New Delhi will have to grapple with the challenge of not being at odds with the electorate while balancing the efficacy of a proportionate response. For India, the dual requirements to counter Pakistani aggression and to convey to the public that New Delhi refuses to be hurt without a commensurate response are reasons why a window is being sought for the conduct of such offensive operations under the nuclear threshold. Whether this shift is likely to alter Pakistan’s behavior toward India is unknown, but it has the potential to change its cost-benefit calculus for better or for worse. These events demonstrate that the strategic dynamics on the subcontinent are not static and it would be perilous to assume otherwise.

Views From India and Pakistan

Proponents of India’s limited war doctrine discount Pakistan’s red lines for the use of its nuclear weapons. In interviews with advocates of this doctrine in New Delhi, including senior Indian military generals, intelligence officers, and diplomats, they argued that TNWs would not stop an Indian military response, despite Pakistan’s posturing. They disavowed claims by Pakistan that TNWs have changed the calculus and have improved its nuclear deterrence posture against India. Indian military specialists contended that the Pakistani military establishment might be adventuristic, but they are not suicidal, as any use of nuclear weapons by Pakistan would trigger massive retaliation from India.

A former Indian Army general who commanded one of three strike corps argued that Pakistan intentionally makes a show of instability to advance its strategic agenda, to suggest that Islamabad’s threshold for nuclear use would be low enough to result in early nuclear use. The general warned that the responsibility for escalating a conflict to the nuclear level rests on Pakistan’s shoulders, given India’s no-first-use nuclear doctrine, and he cautioned that if it chose to escalate, India would respond as per its doctrine of assured massive retaliation. Indian political and military leaders also stressed that the country possesses the military capability to execute proactive military operations, even though India’s Army, Air Force and Navy have well-known capability deficiencies.

Another argument advanced by those who want to call Pakistan’s nuclear bluff argue that geography calls into question Pakistan’s rationale for the employment of TNWs. A former Indian general that commanded a corps in Jammu and Kashmir gave credit to the Pakistani Army’s capability to mobilize more quickly than India’s after the forward deployment of many of its formations that leave a forward zone of 4 to 8 km from the international border. But Pakistan’s ability to mobilize rapidly near the border with India comes at the cost of diminishing the space in which it could use TNWs. The general cautioned that Pakistan would have to contend with the situation of using TNWs on its own soil that could endanger its own forces or alternatively launch a strike against Indian IBGs that would still be within Indian territory. He maintained that despite Islamabad’s rhetoric on the early use of nuclear weapons, “Pakistan is not itching to employ the TNW trigger” because it knows India would exercise its doctrine of massive retaliation, and due to these constraints India could exercise flexibility as it deems. This flexibility has been war-gamed by the Indian IBGs, which the general said suggests that thrusts of around 25 km into Pakistani territory across the international border are open for exploitation without the threat of a Pakistani TNW strike. Furthermore, he claimed that such shallow thrusts would be viable as they do not threaten Pakistan’s national highway, a likely Pakistani redline.

What these views indicate is that the doubting of Pakistan’s red lines within Indian political and military circles stems from a conviction that Pakistani decision-makers have deliberately manufactured instability to profit at the strategic level by inducing fear and policy deadlock in New Delhi. This means that Islamabad cannot discount an Indian military response if there is a gross provocation that New Delhi traces back to the Pakistani state.

Surprisingly, some interviewees in the Pakistani military agreed that nuclear deterrence does not necessarily preclude the space for a limited conventional conflict. For instance, a former head of Pakistan’s Inter-Services Intelligence Directorate in Islamabad noted that a limited conventional conflict was a possibility under the nuclear threshold as the introduction of TNWs has generated a paradoxical effect. On the one hand, TNWs have increased pressure on Pakistan to convince India that it would use these weapons at an early stage of a limited conflict, but the Pakistani military has failed to persuade India that it has lowered its nuclear threshold. On the other hand, labels such as “tactical” for TNWs are irrelevant, as nuclear weapons are inherently strategic weapons irrespective of their yield. What this means is that any nuclear exchange, once initiated, would be strategic and trigger India’s nuclear doctrine of assured massive retaliation.

Another Pakistani general in Islamabad had a similar view, noting that TNWs have failed to generate stability at the lower end of the nuclear threshold. He added that the inability of Pakistan’s TNWs to close the space for limited war had granted India an advantage to exploit for a limited conflict. The main advantage that exists for Pakistan, he quipped, was India’s haphazard military modernization program, which curbs New Delhi’s ability to prosecute a limited war.

A prominent Pakistani strategic analyst who agreed to be interviewed on the condition of anonymity also rejected the popularly held view on TNWs in Pakistan. This analyst stated that “TNWs are hugely detrimental for Pakistan,” and questioned the logic of deploying these weapons, which could fall into Indian hands, arguing that even desperate local commanders would not use them for fear of self-destruction. The interviewee added that more than the Pakistan Army, it was more likely for an extremist group to use them based on their long history of martyrdom operations and suicide bombings.

Such views demonstrate that Pakistan’s strategic community is not unanimous on whether its TNWs have permanently removed the prospect of a limited war under nuclear conditions.

Implications

The notion that the space for limited war exists makes the prospect seem more attractive and workable for its advocates in New Delhi. Notwithstanding the limited nature of India’s covert strike in September 2016, it is significant for four reasons. First, it demonstrates that New Delhi is determined to change the rules of the game by overtly showing that it has the political will to take military action against Pakistan, despite the risk of escalation. Second, it indicates New Delhi’s intention no longer to tolerate the costs of terrorism without inflicting costs of its own on the perpetrators: in other words, it seeks to increase the cost for Pakistan to employ terrorism against India. This cost, however, could be inflicted covertly to force Pakistan to retract or dampen its actions against India. Third, it is intended to show observers on both sides of the border as well as the international community (particularly China, Pakistan’s primary political and military supporter) that Pakistan is vulnerable to Indian strikes. Fourth, it signals India’s readiness to absorb the costs of a potential Pakistani retaliatory strike, as well as its willingness to escalate hostilities if required.

The political decision to attack militant camps in Pakistan does not mean that New Delhi has abandoned its decades-long policy of strategic restraint, but rather that it has shifted to an active policy of calibrated response, which opens the space for it to wage a limited conventional war. It is too early to say what impact a shift in India’s strategy will have on bilateral relations with Pakistan and how the latter intends to respond, but what can be said is that the old playbook is probably reaching its end. It is imperative to recognize these shifts given that despite the risk of escalation, India has demonstrated its willingness to use force and to publicize its action even though what it did was by no means strategic. Furthermore, New Delhi has signaled that it is progressively working toward developing and refining the means to devalue Pakistan’s nuclear deterrent posture and diminish its ability to serve as a firewall behind which it can sustain its strategic agenda.

Even if the views reported above are minimally held on either side of the India-Pakistan border, which currently they probably are, the emergence of these perspectives indicate that the strategic environment is not moored to the past. Over time, such views have the capacity to alter the strategic dynamics between New Delhi and Islamabad significantly, which would have broader political, military and strategic implications.

Pakistan Army orders 2,550 fancy staff cars as govt seeks an IMF bailout

AASTHA SINGH and MANISHA MONDAL

Amidst Pakistan’s economic crisis, army orders 2,550 staff cars

Jungjoo Gernail, an anonymous Twitter user known for his scathing remarks on the Pakistan Army, posted a confidential document on the social media platform that mentioned details of the organisation buying 2,550 staff cars for the forces.

According to the document, the cars are to be ordered from Honda Atlas Cars Pakistan Ltd at a whooping cost of Rs 4,057 million.

It further read that the old cars have “completed their life and the maintenance cost occurring on said cars are on higher side.”

Gernail mocked the government for this step saying that the army has ordered so many cars thinking it was in the national interest.

He also took a dig at the government claiming that borrowing money may lead to growth of terrorism in the state. He referred to Saudi Arabia’s funding of Osama Bin Laden, who was killed by the US forces in Pakistan’s Abbottabad district.

Saudi Arabia may not be part of CPEC, but Pakistan set to use Kingdom to offset growing Chinese debt

By Vinay Kaura

Pakistan has clarified that Saudi Arabia will not be made part of the Beijing-led China-Pakistan Economic Corridor (CPEC) framework and Riyadh's proposed investments in Pakistan are set to fall under a separate bilateral arrangement. Pakistan's new PTI government had recently claimed that Saudi Arabia was poised to become the third partner in the CPEC — that consists of major infrastructure projects in Pakistan. The announcement was made after Pakistani prime minister Imran Khan's first official State visit to Riyadh.

Ever since assuming power, the Khan-led government has been trying to make use of the CPEC as a bargaining chip in Pakistan's vital bilateral relationships. His government is seriously contemplating a reduction of its spending on the CPEC project that could rejuvenate its outdated rail network, while proposing several changes in the existing and future projects. These drastic measures are in part aimed to correcting a difficult financial condition aggravated by an unsustainable current account deficit.

Criticising his predecessor Nawaz Sharif, for lack of transparency in the CPEC projects, Khan has argued that the former prime minister could not visualise the fallout of massive inflows of Chinese machinery on the country's external finances. During his 6 October visit to Quetta, the capital of Balochistan province, he expressed complete awareness about the reservations of Baloch people about the CPEC projects. He asserted that "Balochistan would be paid more than its due share in the CPEC projects," while arguing that the province was ignored by the previous governments.

It needs to be recalled that immediately after Chinese foreign minister Wang Yi's Islamabad visit last month, a senior Pakistani government official termed his country's deals with China as "unfair" because the CPEC agreements tended to benefit Chinese companies alone. Abdul Razak Dawood, the prime minister's advisor, was quoted as saying that "the previous government did a bad job negotiating with China on CPEC — they didn’t do their homework correctly and didn’t negotiate correctly so they gave away a lot." However, the Pakistan government immediately swung into action and refuted this controversial statement while reaffirming the all-weather friendship between the two countries. Pakistan’s finance minister Asad Umar candidly admitted, "We don’t intend to handle this process like Mahathir (Mohamad, Prime Minister of Malaysia)." It needs to be mentioned that Kuala Lumpur has recently cancelled three major China-backed pipeline projects and put a showpiece Belt Road Initiative (BRI) rail link under the scanner.

After much dilly-dallying, Umar finally hinted on 5 October that Pakistan is going to apply to the International Monetary Fund (IMF) for a balance of payments bailout as he expressed Pakistan’s readiness to take "further corrective measures" proposed by the IMF to restore economic stability. But this bailout will not come without a political cost. Khan has been reluctant to seek an IMF bailout during his first 100 days in office because his electoral campaign had been based on getting rid of the begging bowl. This reasoning has led him to meet funding requirements from friendly countries as well as through bringing home foreign wealth of Pakistani nationals.

But the government's economic advisors are totally against this impracticable way as Pakistan requires around $12 billion of additional infusion during the current fiscal year. Moreover, the US secretary of state Mike Pompeo has publicly spoken against lending any American money by the IMF to Islamabad for settling Pakistan's Chinese debts.

It is understandable that the PTI government is looking to Riyadh to bail it out of its financial woes, which made Khan to break his so-called pledge of not travelling abroad in his first three months in office. Within four weeks of coming to power, his decision to visit Riyadh reflected the desperation of his situation as well as the fear of the political consequences of being seen weak among his supporters. He received a very warm welcome in Riyadh, which indicated a new beginning of a very critical relationship that was badly hit when the previous PML-N government refused to send Pakistani troops to Saudi Arabia to fight in Yemen in 2015. This fateful decision had also affected Pakistan's ties with other Gulf countries. But despite the recent lack of warmth in bilateral ties, the Kingdom’s close ties with the Pakistani military remains intact, as exemplified by the appointment of retired army chief Raheel Sharif as head of the so-called ‘Islamic alliance force’. However, Khan’s decision to invite Saudi Arabia to develop a refinery at Gwadar also indicates Pakistan’s willingness to serve its geopolitical interests through the CPEC. The Pakistani finance minister has admitted that Islamabad did not keep Beijing in the loop, and China was only informed of Pakistan’s intent to involve a third-party investor.Pakistan was also trying to use Gwadar as leverage to persuade Riyadh to provide Islamabad with oil on a deferred-payment basis which would substantially reduce the amount of borrowing from the IMF. The Saudis are equally interested in investing in some big-ticked projects in Pakistan as part of their "Vision 2030" development plans that seek to expand their economic horizons and diversify from a largely oil-based model through collaboration and foreign investments.The entry of Saudi Arabia in the equation — the most important non-NATO ally of the US in West Asia — clearly indicates the protection of American geopolitical interests in the CPEC, directly or indirectly. The ambitious Saudi crown prince Mohammad bin Salman has courted the Donald Trump administration to counter Iran's growing influence in the West Asian region. Salman has involved Saudi Arabia in a bloody military conflict in Yemen against the Iranian-backed Houthi militia. It is believed that Pakistan’s CPEC offer to Saudi Arabia to invest in western Balochistan bordering Iran and Afghanistan could upset Tehran. The fears that allowing Saudi Arabia to play an active role close to the Iranian border may fuel sectarian conflict in Pakistan are not entirely baseless. Moreover, Iran would certainly not desire a Saudi presence in Gwadar which is not very far from the Chabahar port.

Although Saudi Arabia has been China’s largest trading partner in West Asia, since the dynamics between them within the CPEC would redefine the engagement in West Asia in terms of global politics and economy, Beijing cannot be expected to remain a mute spectator to this sudden turn of events at a time of greater global geopolitical turbulence. Since the issue of issue of inviting Saudi Arabia into the CPEC involves a number of questions about new geopolitical alignments, the PTI government has taken a U-turn, at least in public. Speaking at a joint news conference with Pakistan's information minister Fawad Chaudhry on 2 October, Minister for Planning and Development Khusro Bakhtiar clarified that there was no decision to bring Saudi Arabia under the framework of the CPEC. He said, "Saudi Arabia is not to become a collateral strategic partner in the CPEC. This impression is not true... The framework between China and Pakistan is bilateral, and Saudi Arabia is not entering that framework as a third-party investor, rather the base of CPEC will be broadened and its pace will be expedited."

Whatever the semantics, there is a strong possibility that Saudi Arabia is going to invest heavily in Pakistan's infrastructure projects, within or without the CPEC.

China has been turning the CPEC into a grand project to maintain incontestable hegemony in Pakistan. Beijing continued to believe that Pakistani government would remain perpetually loyal to China for the CPEC windfall and keep on reaping its benefits without hesitation or any hint of incredulity to Pakistani people, however inconsistent, contradictory, or at odds with the ground realities. This has become unsustainable now. Most surprisingly, Maulana Samiul Haq, who is known as the 'Father of the Taliban', and who favours more Chinese involvement in the resolution of the Afghan conflict, has urged the PTI government to treat China with caution while dealing with a worsening financial crisis. He is reported to have said, "I don’t approve of a relationship that leads us to slavery. Given their (Chinese) handling of Muslims at home, the Chinese will behave like the British East India Company once they dig their feet deeper into Pakistan." As local resentment has begun to move from the streets to government, China seems to be facing the growing challenge of a tactical shift in Pakistan’s official tone from uncritical gratitude to grudging support.

Trying to prevail over critically fragile public finances as well as realising the advantages of hard-bitten realism, Khan has begun to make concerted efforts to revise the terms of engagement on the CPEC projects. When he goes to China in November for a week-long official visit, Beijing is expected to try hard to pacify him by offering more agreeable terms of CPEC projects as well as by agreeing to reschedule some of the bilateral debt. This development simply vindicates India's s principled stand of consistently opposing the Chinese model of infrastructure development through its ambitious BRI which is nothing but a disguised form of ‘debt-trap diplomacy’. Therefore, India should continue to work with the US and other partners in the Indo-Pacific region to develop credible alternatives to the China-led BRI.

https://www.firstpost.com/world/saudi-arabia-may-not-be-part-of-cpec-but-pakistan-set-to-use-kingdom-to-leverage-chinese-debt-5336801.html

Dollar closes at all-time high of Rs133.6 as #Pakistan goes to #IMF

The dollar closed at its highest ever rate of Rs133.6 on Tuesday after another round of the rupee’s depreciation as news broke of Pakistan seeking an IMF bailout.

The dollar surged by Rs9.26 and was traded at Rs133.6 at the close of the interbank market. This was the biggest single day jump in the dollar rate this year.

Its interbank rate at the close of market was up Rs9.26 or 7.4% from the previous day’s tally of Rs124.33.

On Monday, Prime Minister Imran Khan gave a green signal to his finance team for an IMF programme when they meet representatives of the Washington-based lender in Bali later this week. The loan will save Pakistan from defaulting on foreign payments. However, it comes with its own set of restrictions.

One of the conditions is a free float exchange rate as opposed to a managed exchange rate. This means that the central bank will not intervene in the market, and let market forces determine the actual rate of the US dollar against the Pakistani rupee. And this is precisely what seems to have happened.

The dollar surged to Rs133.6, up 7.4% from Monday’s rate of Rs124.3. This is because the central bank is not selling dollars in the market or asking other banks to do it, say market sources.

“Yes, there is an upward movement in the dollar and market expectations are driving it,” State Bank of Pakistan Chief Spokesperson Abid Qamar told SAMAA Digital.

The government decision to seek an IMF bailout package affected market expectations, Qamar said, adding that in such situations the dollar initially shoots up but settles at a lower rate by the day’s end.

The SBP spokesperson said that he could not quote any rate at the moment because there were more than 30 banks quoting different rates, and it was changing every minute. “We will know the actual rate and the high and low points when the market closes. All banks report their exchange rates to us,” he said.

The interbank market rate is the benchmark rate to evaluate the dollar’s value, according to experts.

It is the interbank rate that determines the open market rate, which is usually slightly above the former, but does not indicate the actual value of the dollar.

Pakistan is seeking the IMF loan programme because its monthly imports exceed its exports by $2.7 billion, which leaves it with fewer reserves than it needs to pay for essential imports (oil, raw materials, machinery etc), and to repay its foreign loans (more than $90 billion).

According to the latest data, the government has $8.4 billion in reserves, which is the lowest level of foreign exchange reserves in the last four years and is not enough to sustain even two months of imports. During the tenure of former finance minister Ishaq Dar, the government used these reserves to manage the exchange rate at Rs106. The policy was criticised by both international and local experts.

Once Dar stepped down, the Pakistani rupee experienced several episodes of depreciation against the US dollar. Since December 2017, the dollar has appreciated 18% but sources familiar with the matter say the IMF wants Pakistan to shift from a managed exchange rate regime to a free-float regime, allowing market sources to determine dollar value.

If Pakistan adjusts its exchange rate, experts believe that the dollar will shoot up to Rs140, and may even hit Rs150. However, others believe that it will settle at around Rs135.

https://www.samaa.tv/news/2018/10/dollar-surges-to-rs134-as-pakistan-seeks-bailout-from-imf/

Economics Pakistan Devalues Rupee as It Prepares to Seek 13th IMF Bailout

By Kamran Haider and Faseeh Mangi

Pakistan devalued its currency while its stocks and bonds rose after the government said it would seek the nation’s 13th International Monetary Fund bailout since the late 1980s in a bid to stabilize the economy.

The South Asian nation’s key stock measure snapped six days of losses to advance 1.6 percent, the most in three weeks, at the close while its dollar-denominated bonds maturing in 2027 climbed the most since July 26 before paring gains. The rupee, a managed float, fell 7.5 percent to 133.64 against the dollar, the most in a single day since Bloomberg started tracking data from 2000. The move is speculated to have been pushed by authorities in response to the IMF’s calls for a weaker exchange rate.

After consulting with “leading economists”, Pakistan will formally approach the IMF for support and Finance Minister Asad Umar will hold talks with officials during the lender’s annual meetings in Bali this week, the Finance Ministry said in a statement late Monday. Umar told Bloomberg in August that the government may need more than $12 billion. Prime Minister Imran Khan, who came to power after July elections, is under pressure to generate external funding as the country faces the latest in a long line of financial blowouts. The IMF said last week that recent government efforts haven’t been sufficient to stem a looming crisis.

“The challenge for the current government is to ensure that fundamental economic structural reforms are carried out to ensure that this spiral of being in an IMF program every few years is broken once and for all,” the Finance Ministry said. “To correct the underlying imbalances, fiscal and monetary actions needed to be undertaken without delay.”

Foreign-currency reserves have plunged 40 percent in 2018 to the lowest in almost four years, while the nation is running twin current-account and budget deficits of more than 5 percent of gross domestic product. Authorities have devalued the rupee multiple times since December.The currency’s latest drop comes after the IMF repeatedly stated that the rupee was overvalued. “The currency move is definitely a devaluation,” said Shahid Habib, chief executive officer at Arif Habib Ltd.“The market knows the macroeconomic conditions and based on those, they are having their own expectations for the exchange rate,” said Abid Qamar, a spokesman at Pakistan’s central bank.

The central bank has raised interest rates to the highest in three years to help shore up confidence in the economy.

Bailout Addiction

“Going to the IMF was a matter of when, not if. For an economy that has become addicted to foreign loans and bailouts, the future is very much like the past,” said Uzair Younus, a South Asia director at Washington-based consultancy Albright Stonebridge Group LLC. “Pakistan may very well find itself seeking another bailout in the next three to four years if it does not do structural reforms.”

The government has deep problems to fix. Less than 1 percent of the nation’s more than 200 million people file tax returns and its exports, including textiles, lag the region. However, Pakistan has yet to formally approach the IMF, the lender’s Chief Economist Maurice Obstfeld told reporters in Bali.

“We’ll be listening very attentively when and if they come to us,” Obstfeld said. “The government expressed a desire to enact deep structural reforms that might break the cycle of Pakistan needing financial support from the fund frequently. That is a very good sign going forward.”

U.S. Approval

Islamabad has also taken on projects valued at more than $60 billion that include loans from China to bolster its decrepit infrastructure. Critics see that as part of a debt diplomacy trap by Beijing and question whether Pakistan will be ever be able to make the repayments.

Those vast debts have prompted worries from U.S. Secretary of State Mike Pompeo, who warned in July that he would be watching to see if Khan’s government uses IMF funds to pay off the opaque Chinese loans. “Securing U.S. approval on the IMF Executive Board will require Pakistan to strike a fine geopolitical balance between the Trump administration’s concerns over China’s growing economic engagement in Pakistan and the country’s bilateral commitments,” said Bilal Khan, a senior economist at Standard Chartered Plc.

Pakistan’s economic outlook is also at risk from eroding gains in macroeconomic stability and growth may moderate to 4 percent in 2019 and slow to about 3 percent in the medium term, the IMF said on Tuesday.

“We will have to swallow this bitter pill,” Pakistan’s Maritime Affairs Minister Syed Ali Haider Zaidi told Bloomberg in Karachi on Tuesday. “We have looked at all our options.”

https://www.bloomberg.com/news/articles/2018-10-08/pakistan-to-seek-imf-bailout-to-stabilize-deteriorating-finances