India’s neighbours Pakistan and Sri Lanka are faced with serious financial and political odds. A change of government in Pakistan is said to be a near-certainty. With serious financial troubles and skyrocketing prices of essentials in Sri Lanka, the people are already in the streets, up in arms against the government headed by President Gotabaya Rajapaksa.
In Pakistan, the Imran Khan-led government is tottering. Mismanagement of the economy is cited as the prime reason. Khan’s relief package for industries and a populist cut in fuel and electricity charges have allegedly hurt the national economy. Cash-strapped Pakistan is knocking at international funding agencies and close friend China for support. However, Pakistan continues to be in the grey list of the Financial Action Task Force in relation to its failure to control terrorist activities. This will stand in the way of it obtaining loans from the IMF. Under the circumstances, with the all-powerful military scheming to see Khan’s exit from power, the political situation in Pakistan today is set for a deep churning. A replacement for Khan at the head of the political establishment there can only be worse for India as there is no strong leader in Pakistan today to keep the military under some check. Notably, it is principally the military that is guiding the anti-India offensives through its own instruments like terrorism in what amounts to an ongoing proxy war.
Rajapaksa, like Khan, is alleged to have harmed Sri Lanka’s economy. The first major step he took after winning the election in 2019 was to substantially cut the Value Added Tax (VAT), saying the fall in prices of commodities could result in activation of the markets and more purchases of goods by the people. This, he reasoned, could enliven the economy. The reverse happened. Worse, the Covid season has brought the money-spinning tourism sector there to its heels and also hurt exports of tea and other commodities. A 15 per cent devaluation of Sri Lankan rupee in the hope the nation would thus get more funds flow from abroad only resulted in a market upheaval and fresh inflationary trends. Prices of essentials like milk and rice skyrocketed. China extended it a loan of 250 crore dollar last year and India extended about the same amount as its help this year. But, the financial drift could not be checked and Sri Lanka is now seeking IMF loans – which it tried to avoid in the past – to temporarily overcome the impasse. For any government, managing the economy well means half the job done. How these parallel situations will play out in the long run is anybody’s guess.
