Parallels Between Ottoman Debt and Pakistan Debt – Wither Pakistani Military?

On March IMF announced that “The IMF Executive Board completed today the combined second through fifth reviews of the Extended Arrangement under the Extended Fund Facility (EFF) for Pakistan, allowing for an immediate purchase equivalent to about US$500 million for budget support.”

In the same week, several Pakistani newspapers reported that “State Bank of Pakistan was being handed over to IMF though legislation”; While some other newspapers reported that State Bank of Pakistan was being given “unprecedented autonomy to target inflation rather than on economic growth”. Reading between the lines, basically what it means is that State Bank of Pakistan will be answerable to international institutions rather than the Government of Pakistan.

The reasons for these are clear, as of December 2020 Pakistan owes US $11.3 billion to Paris Club, US $33.1 billion to multilateral donors, US $7.4 billion to International Monetary Fund, and US $12 billion to international bonds such as Eurobond, and sukuk. Several Pakistani intellectuals have spewed fire and brimstone over this saying that this was unprecedented and unusually harsh terms.

This has eerie parallels with Ottoman Debt Crisis on late 19th century and early 20th century. The Ottoman Public Debt Administration (OPDA) was essentially a European-controlled organization that was established in 1881 to collect the payments which the Ottoman Empire owed to European companies. The OPDA became a vast, essentially independent bureaucracy within the Ottoman bureaucracy, run by the creditors and its governing council was packed with European government officials, including one representative each from British, French, German, Austrian, Italian, Dutch, and Ottoman creditors, and one representative from the Ottoman state. It employed 5,000 officials who collected taxes that were then turned over to the European creditors. At its peak it had 9,000 employees, more than the empire’s finance ministry.

Social interest and aforementioned economic crisis along with military defeats led to subsequent dissolution of Ottoman Empire.

Pakistani Government has been running a Ponzi scheme,” borrowing from Peter to pay Paul” to service and paydown its debts. Various reports suggest list of Pakistani assets include M-1, M-4, IMDC, Okara Bypass, Faisalabad-Pindi Bhatia of the motorway, Karachi’s Jinnah’s international airport, PTV, Pakistan Radio’s assets and F-9 park in Islamabad.

Only assets left seem to be “Crown Jewels” of Pakistan i.e., Pakistan’s nuclear program. How Pakistan will manage to service parts for French military aircraft, American F-16’s , M1 tanks is still unknown. Right now Pakistani’s army is feverishly trying to ensure that its budget for 2021 and beyond is passed ( via Pakistani national budget). Pakistani’s army’s spending outside of its military expenses includes various construction activities of DHA (Defense Housing Authority) projects. It is an old adage that Army marches on its stomach. It is also unclear how Pakistani Army can appropriate enough funds to cover the salary increases for its men and women, pensions for veterans and yet find funds to manage Taliban.

Pakistani military’s Quixotic obsession for Kashmir, and strategic depth will prove to be its undoing.