It’s a startling prediction from former R&AW chief AS Dulat: “My gut feeling tells me this year Modi will deal with Pakistan. He may bail them out.” And would the Pakistan accept a bailout from its arch-enemy? Dulat is convinced they would. “Of course… they’re dying for a bail out,” he says firmly.

The fact is Pakistan’s economy is in such dire straits even an Indian handout could be an acceptable lifesaver. The IMF’s team left Islamabad over two weeks ago and everyone was assured that the only thing that remained was for the t’s be crossed and the i’s to be dotted. Zoom conferences have continued and a Pakistani delegation has been to Washington but there’s no sign of a deal yet.

“Even Imran sent so many messages,” insists Dulat, adding, “Mian Nawaz Sharif is coming back to Pakistan we hear. The Sharifs have always been our favourites. Even with Zardari we had a decent sort of relationship.”

Could the brutal realities of Pakistan’s economic situation actually lead to a rapprochement between the subcontinent’s irreconcilable enemies? Inflation there has now hit 41.54 per cent and there’s constant talk of hospitals running short of drugs from aspirin to insulin. Fuel is being supplied to urban areas but there are dire shortages elsewhere.

Pakistan’s foreign exchange reserves total $3.2 billion, enough for a month’s imports. An IMF deal would bring in another $1.5 billion immediately and $6.5 billion totally. That’s a lifeline but not a goodies-laden rescue ship.

Yes, Saudi Arabia and China will kick in with more dollars once the IMF deal is struck but they’re also looking unusually reluctant about reaching for their wallets. In short: don’t expect Pakistan’s economic woes to be blown away like the pollution on a windy day in Lahore. One estimate is Pakistan’s total debt now is an astounding $240 billion and the economic situation could slide further in the coming months.

Squeeze on dollar spending

Pakistan’s central bank has been squeezing dollar spending by not giving clearances for import letters of credit and that’s hitting jobs. So, for instance, the textile industry has come to a halt because dye cargoes are not being released in Karachi (it’s bit of an own goal as textiles are Pakistan’s biggest export and foreign exchange earner). Karachi at the moment is harbouring everything from dyes to automobile components and iron ore. Pakistan will have to pay for the consignments once the IMF deal comes through. That may further drain Islamabad’s foreign exchange coffers.

The situation next door in Afghanistan is also adding to Pakistan’s woes. In recent months, the Tehrik-e Taliban Pakistan (TTP) has stepped up its attacks. At the end of January, there was the horrific attack on a Peshawar mosque used mainly by policemen that killed 101 people and the daring assault more recently on the Karachi police chief’s office.

Pakistan has demanded the Afghan government stop the TTP using its territory. But the Afghan government, in turn, is said to be demanding financing from Pakistan. Says one analyst: “It’s a farce. The Pakistanis know the Afghans are never going to put the squeeze on the TTP. And the Afghans know Pakistan has no money to bail them out.”

All these are contributing to even the Chinese, who are investing in the country, worrying about their safety. Pakistan has debts of $30 billion with China. The IMF and China are also at odds about how to share the burdens of debt relief. This could be one factor delaying the IMF deal. Also, it’s clear that with the Americans out of Afghanistan, the Pakistanis have very little leverage over them to ensure that the IMF deal is pushed through.

Of course, the immediate problems could be resolved if the Pakistanis could tap into the $15.52 billion Jamaat-e-Islami chief Sirajul Haq claims is held by 18 politicians, generals, bureaucrats and judges in their bank accounts. But “our country’s institutions are helpless to recover money from these people,” he said Monday.

Where does this leave our difficult neighbour? “They will have to start selling their nukes,” says one Pakistan analyst in black humour mode. That remark might have been funny if it didn’t sound unpleasantly possible. Also, Pakistan’s army is suddenly even less affordable than before. What’s the point of buying tanks when you can’t pay for their fuel? And thus, Dulat’s prediction begins to look more plausible. A bailout from India and even a peace deal of sorts could be the only way forward.

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