Pakistan, China and the Structures of Debt Distress: Resisting Bretton Woods

Abstract

Pakistan has received a total of 23 loan packages from the International Monetary Fund (IMF) between 1958 and 2023, and recurrent indebtedness has hindered structural transformation. Recent crises, such as the COVID-19 pandemic, surging commodity prices, Russia's invasion of Ukraine and diplomatic tensions between the United States and China, have exacerbated Pakistan's indebtedness. This debt has geopolitical importance given the rivalry between the US and China. Multilateral support for restructuring has been complicated by Pakistan's unique alliance with China through the China‒Pakistan Economic Corridor, pivotal to the Belt and Road Initiative. This analysis of Pakistan's debt crisis explores this complexity by considering the Pakistani government's attempts to resist the IMF, particularly between 2018 and 2022, when the potential of China as an alternative source of financial support looked increasingly viable. Unlike less critical political analyses on debt, which tend to be preoccupied with endogenous governance failures and fiscal profligacy, this article focuses on the external drivers of debt. In doing so, it highlights the role of a hostile international legal system, standard-setting arrangements, rating agencies and arbitrary charges that impose huge economic burdens and undermine financial stability, as well as the constraints embedded in the global investment and financial architecture that persistently limit Pakistan's policy space.