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Pakistan makes Afghan refugees pay the price
for the country’s economic crisis
ADNAN AMIR Contributing writer
Taliban fighters stand guard as Afghan
refugees wait to register at a camp near
the Torkham border crossing in Torkham,
Afghanistan, on Nov. 4.

Nikkei Asia - Special excerpt from Dec. 4-10, 2023 Print edition. Nikkei Inc. No reproduction without permission.
Nikkei Inc. No reproduction without permission.
 THE BIG STORY
Trucks loaded with goods are
seen at the Torkham border
crossing as refugees head back
to Afghanistan on Oct. 30.
Pakistan is “ ISLAMABAD Kaleem Ullah, a 38-year-old
Afghan man, was walking home with groceries
for his family one night in October when he saw a
no longer an policeman standing outside his small house
in Karachi.
economically “You are under arrest for not having the
viable state documentation to live in Pakistan legally,” the
and is in deep policeman said. Kaleem’s children then saw their
father dragged into a police van, which was the
economic last time they saw him, the only breadwinner of his
trouble family of seven people.
He and thousands of other Afghans are victims
”
of a sudden deportation order by Pakistan’s
Adeel Malik government, announced with little explanation
A development
in October. It threatens to unleash yet another
macroeconomist at
human catastrophe on a region already beset by
St. Peter’s College,
Oxford University recent tragedy. Following the Taliban takeover of
Afghanistan in 2021, an estimated 600,000 Afghan
refugees poured into Pakistan. Then, last year,
massive climate change-induced flooding ruined
much of Pakistan’s farmland and infrastructure.
The government insists Pakistan’s economy
is breaking under the strain of providing
for so many Afghan refugees, though many
undocumented Afghans have been living in
Pakistan for generations and have never set foot in
their supposed homeland. Nevertheless, 374,000
Afghans living in Pakistan have so far left for
Afghanistan following the order, according to the
United Nations High Commissioner for Refugees.
A spokesperson for the UN High Commissioner
for Human Rights in October called mass
deportation a “violation of international human
Nikkei Asia - Special excerpt from Dec. 4-10, 2023 Print edition.
Nikkei Inc. No reproduction without permission.
Reuters
rights law.”
The deportations are the latest in a series of
desperate and, many experts say, counterproductive
measures the government is taking to assign blame
and distract public attention from an agonizing
political and economic crisis that threatens the
country with international default.
“Pakistan is no longer an economically viable
state and is in deep economic trouble,” said Adeel
Malik, a development macroeconomist at St.
Peter’s College of Oxford University.
Experts fear the country could become the
next domino to fall amid a crisis in sovereign
debt markets, after Sri Lanka defaulted on its
international debts last year. A default by Pakistan
could unleash a much deeper crisis were access
to international borrowing to be cut off. Already
a number of countries that borrowed heavily
to get through the COVID-19 pandemic are
facing difficulty repaying their foreign currency-
denominated debts, particularly in the wake of a
surge in the value of the U.S. dollar.
In Pakistan, the rupee has fallen 25% so far this
year against the dollar, making interest payments
on $128 billion in foreign debt and external
liabilities owed by the government that much
more expensive. The government must spend
7.3 trillion rupees ($25.5 billion) servicing its
domestic and foreign debt this year, or 50.4% of
the government budget expenditures, according
to the Ministry of Finance.
“Pakistan is approaching inevitable default
sooner or later,” said Nadeem uz Zaman,
an economist at Balochistan University of immigrants. “It is clear that the policy is purely Pakistan’s
Information Technology, Engineering and politically motivated by racist and xenophobic inflation rate
Management Sciences (BUITEMS). preferences as opposed to any underlying
in October hit a
“It will face disruptions in imports, especially economic logic or motive.”
of essential goods, challenges in maintaining
59-year high of
economic and political order, potential impacts on
its international profile, and possible hindrances
‘ECONOMICALLY IRRATIONAL’ After he
was taken by police, Kaleem Ullah -- Nikkei has 36%
in its efforts to curb terrorism,” he said. changed his name for security reasons -- was kept Source: Government
Experts are reaching back decades for analogies in detention and then deported to Afghanistan statistics
to the crisis. In 1998, after Pakistan staged a via the Chaman border crossing, according
nuclear test, international sanctions resulted in the to neighbors. Having come to Pakistan in the
country’s foreign exchange reserves dropping to aftermath of the 2001 U.S. invasion of Afghanistan,
a point where they could cover only three weeks’ he has made Karachi his home for the past 20
worth of imports, a perilous level, and one that years, marrying a Pakistani woman and creating
economists say Pakistan’s current reserves fell a family. Neighbors interviewed by Nikkei in late
below this year. November said the remaining family members
Another point of reference is the 1971 economic have left their home but that they do not have any
crisis unleashed by a war with India and the further information on their whereabouts.
breakup of East Pakistan, now Bangladesh,
though a strict comparison is difficult. “Pakistan
is facing the worst economic crisis of its 76-year-
Hizatullah, a pseudonym, is similarly
old history,” Ikram ul Haq, a lawyer and taxation Pakistan’s current account balance plunge puts pressure
specialist, told Nikkei. on forex reserves (As percentage of GDP)
Inflation hit 36%, a 59-year high, in October,
according to government statistics. Prices of key
6
goods, meanwhile, have risen much faster. That 4
of gasoline had shot to 330 rupees per liter by Emerging markets,
September, a 54% increase from January and the
2
developing economies*
highest price on record, though it has since fallen
0
in line with oil prices. Electricity rates rose by up to –2
100% in August-September, sparking unrest across Pakistan
–4
the country.
–6
The government’s focus on immigrants might
have little economic rationale but is a tried and –8
1980 ’85 ’90 ’95 2000 ’05 ’10 ’15 ’20
tested trope for governments seeking to distract
public attention from economic crises. *No data from 1987 to 1996 Source: International Monetary Fund
The country has been politically unstable since
April 2022, when former Prime Minister Imran
Pakistan’s inflation has hit historic highs
(Average consumer prices, percentage change from a year earlier)
Khan was removed from office. After being arrested
120
and imprisoned in August, he now faces trial on Forecast
multiple corruption and misconduct charges. 100
Elections are expected to take place in February Pakistan
but in the meantime, the military has taken on an 80 Emerging markets,
developing economies
ever greater role. One person close to the decision-
60 Advanced economies
making said the policy focus on smuggling and World
migrants indicates that the army has become 40
predominant in economic policy.
“There is absolutely no economic logic to this 20
policy, if one may call it that,” said Shahram Azhar 0
a professor of economics at Bucknell University 1980 ‘90 2000 ‘10 ‘20 ‘25
in the U.S., speaking about the expulsion of Source: International Monetary Fund
 THE BIG STORY

Pakistani interim Prime Minister

Anwaar-ul-Haq Kakar’s government
has ordered a crackdown on Afghan
refugees in the country in a last-ditch
attempt to save the economy.

A sharp rise in The government says it considers the Afghan
electricity rates across refugees to be a huge economic burden on
Pakistan in September Pakistan. Since 1979, the government said in an
hit small-scale
tradespeople, such as
unpublished study shared with Nikkei, Afghan
fruit vendors, hard. refugees have caused Pakistan’s economy a loss
of $413.4 billion. Global aid to help them has only
amounted to $4.55 billion, the study said.
“Afghan refugees were a huge burden on
Pakistan’s economy and we could not afford
Nikkei on condition of anonymity that expelling
undocumented Afghans is in Pakistan’s security
and economic interests and this decision will
be implemented. “Western countries criticizing
Pakistan on this matter abandoned the majority of
their Afghan allies after the fall of Kabul and still
want Pakistan to continue bearing the brunt of
millions of Afghans. No more,” the official said.

Reuters
to take care of them anymore,” Abbas Khan, PERFECT STORM The refugee crisis appeared to
Pakistan’s chief commissioner for Afghan refugees, coincide with mounting public unrest, in particular

struggling. He was born in Pakistan to parents
who had fled Afghanistan following the Soviet
invasion of 1979 and has lived in the country for all
There are of his 42 years.
When he heard that the Pakistani authorities
3.7 were rounding up Afghan refugees, Hizatullah
decided to travel to Afghanistan to avoid any
million trouble, leaving behind a small business he had
built in Karachi.
Afghan refugees
While waiting for his turn to cross into
in Pakistan
Source: United Nations High
Commissioner for Refugees
Afghanistan from the Torkham border in
northwest Pakistan, Hizatullah told Nikkei by
telephone: “I have never lived in Afghanistan
and I don’t know anything about that place and
how to survive there.” Hizatullah has not been
contactable since that interview in October, and his
fate remains unclear.
Kaleem and Hizatullah’s stories are similar to
many others. According to UNHCR, there are 3.7
million Afghan refugees in Pakistan, 1.3 million of
whom are undocumented and will be targeted by
the forced deportation exercise. They include the
600,000 people who fled from Afghanistan after the
Taliban takeover in 2021.
Pakistan’s tumbling rupee adds to cost of living
(Pakistan rupee per U.S. dollar exchange rate, monthly average)
50
100
150
200
250
300
told Nikkei. “The deportation is an exercise to
bring our house in order so that we have control
over who enters Pakistan and lives in Pakistan.”
Khan also said the decision to deport Afghans
was not made in haste. “We have been asking them
to leave for more than a year,” he said, “and now we
have begun to actively implement this decision.”
Whatever the merits of the argument, few
believe that the economic rationale alone is the
driving force behind the expulsions.
“From an economic standpoint, the demographic
in question -- Pakistani-born individuals of Afghan
descent -- consists of millions of hardworking
men and women who contribute to the GDP of
the country in every province,” said Azhar, the
economist from Bucknell University.
“Although there is no such category in
Pakistan’s official labor force surveys, anecdotally
speaking, it is evident that these workers are
not competing with other Pakistani workers for
occupations or jobs,” he said, adding that while it
is fashionable to call refugees a burden, Pakistan
does not offer many social benefits to its own
citizens, let alone migrants. “It is economically
irrational to argue that the Afghan-descended
demographic adds to the ‘burden.’”
The government says there is a secondary
motive to expel undocumented Afghans: security.
Sarfraz Ahmed Bugti, Pakistan’s caretaker interior
minister, has told the media that this year 24
suicide attacks have been carried out by terrorists
in Pakistan, and in 14 of them the suicide bombers
were Afghan.
A security official privy to the matter told
As Pakistan’s economic crisis deepens, more
people are relying on charities for food and
resources. These women are waiting to
following a sudden rise in electricity prices, which
doubled for some households in August. The
government had to increase energy prices and
end fuel subsidies partly due to an agreement it
had struck with the International Monetary Fund
in exchange for a $3 billion standby loan in July,
which will help Pakistan avoid default.
Dawood Shah, a fruit vendor in Islamabad,
received an electricity bill of 50,000 rupees for the
month. “My monthly income is 30,000, and I had
to borrow money to pay my electricity bill,” he
told Nikkei. He added that some of his fellow fruit
vendors had to quit Islamabad and move back to
their villages because they could not afford to pay
their electricity bills.
Rehana Wahid, a working woman in Islamabad,
had to vacate the apartment she shared with a
roommate after the latter could not afford the
electricity bill and moved home. She lives in a
working women’s hostel now.
Following the electricity price hikes, merchants
across Pakistan shut shops and markets for several
days in early September. There were angry protests
against the government after it was reported that
some people had died by suicide after not being
able to pay their bills.
The public mood, however, brightened after
AP
September brought cooler weather and lower bills
for running air conditioners, though there is still
anxiety about the future. “I am really terrified,”
Wahid said. “Next year when summer starts, what
will I do to pay my electricity bills?”
Against the backdrop of the crisis, many
economists are counseling the government to
adopt reforms, most of which focus on broadening
the tax base, eliminating undue state influence on
the economy and getting rid of inefficiencies in the
energy sector.
“Pakistan should widen the tax net and tax the
“
Afghan
rich and address all the flaws in the energy sector,”
Malik, from Oxford University, told Nikkei.
refugees were
Instead, the crackdown on Afghan refugees is a huge burden
only one of a series of measures that economists on Pakistan’s
say are of dubious economic utility: In September,
caretaker Prime Minister Anwaar-ul-Haq Kakar
economy and
also ordered strict crackdowns on black markets we could not
and the smuggling of oil, sugar and agricultural afford to take
products from Iran and Afghanistan. The
government also launched a crackdown on U.S.
care of them
dollar “hoarding.” anymore
Miftah Ismail, a former finance minister of
Pakistan, told Nikkei that smuggling caused
Pakistan’s exchequer a loss of almost 400 billion
”
Abbas Khan
rupees, and controlling it is a step in the right Pakistan’s chief
direction. “The smuggling of U.S. dollars distorts commissioner for
Afghan refugees
Pakistan’s currency market,” he said, “and hence it
should be stopped by controlling the flow of goods
to and from Afghanistan and Iran.”
Nadeem ul Haque, vice chancellor of the
Pakistan Institute of Development Economics,
said that gains from controlling smuggling will be
short-lived and hurt the economies in poor border
areas at a critical time. “We need to understand

Reuters
2003 ‘05 ‘07 ‘09 ‘11 ‘13 ‘15 ‘17 ‘19 ‘21 ‘23 receive rations from the Saylani Welfare Trust that people living in border areas near Iran
Y-axis inverted to show declining rupee Source: State Bank of Pakistan Core Statistics Department in Karachi, in April. completely rely on smuggling for their livelihood,”

Nikkei Asia - Special excerpt from Dec. 4-10, 2023 Print edition.
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 THE BIG STORY
The crisis is “ he said. “Unless no workable alternative is
provided to them, the smuggling will continue in
one form or the other.”
much worse Another measure came in June when the
government of then-Prime Minister Shehbaz Sharif
than what the formed the Special Investment Facilitation Council
economy has (SIFC), a body with civil and military leadership.
previously faced The idea was to fast-track foreign investment in
Pakistan and bypass bureaucratic red tape.
because of the In September, Kakar said Pakistan was
enormity, scale expecting foreign investment of $50 billion under
and speed with the SIFC, mostly from Gulf countries, in the next
which new five years, though experts say it is unclear whether
this will actually materialize.
investments Uzair Younus, director of the Pakistan Initiative
have stagnated at the Atlantic Council, says political dysfunction
is at the root of the economic malaise. “So long as
” the beneficiaries of the status quo are in charge of
pushing meaningful reforms,” he told Nikkei, “the
Shahram Azhar
A professor of economics crisis will likely continue.”
at Bucknell University
THE FIRST SIGNS OF CRISIS While the
government bears much of the blame for the
present state, a number of events have exacerbated
the crisis: Last year, floods caused by climate
change killed around 1,800 people, destroyed
13,000 kilometers worth of roads, and damaged
450 bridges and 2.3 million houses. Around 33
million people were affected.
According to the Post-Disaster Needs
Assessment of Pakistan Floods 2022, a document
prepared jointly by a number of development
agencies and multilateral banks, the total damage
Nikkei Asia - Special excerpt from Dec. 4-10, 2023 Print edition.
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The International Monetary Fund
approved a $3 billion standby loan
to Pakistan in July.
Reuters
to physical assets is estimated at $14.9 billion,
with the total loss to economic activity estimated
at $15.2 billion. Total reconstruction needs are
estimated at $16.3 billion.
The floods are estimated to have created around
9 million newly poor in a country of 240 million,
said Hina Shaikh, country economist for Pakistan
at the International Growth Centre.
Another accelerant to the crisis, meanwhile,
was the pandemic. Partly in an effort to keep its
economy afloat, Pakistan borrowed an estimated
$10 billion, according to a 2022 report by the CAREC
Institute and Asian Development Bank Institute.
“The pandemic was, on the ground, kinder to
Pakistan than neighbors like India or Iran,” said
Ali Hasanain, associate professor of economics
at Lahore University of Management Sciences.
“[But Pakistan] overstimulated the economy
and gave large tax breaks and subsidies to large
businesses and chosen sectors that would be seen as
inappropriate under normal circumstances. It is still
struggling to fully reverse some of these measures.”
However, most experts blame the crisis on
government dysfunction, a cause which many
argue predates the twin crises brought on by
climate change and the pandemic.
“The defining symptom of Pakistan’s economic
crisis is the perpetual lack of growth in investments
People struggle to move their vehicles through
floodwater in Hyderabad, Pakistan, on July 24, 2022,
after devastating storms hit the country.
and productivity,” said Azhar of Bucknell
University. “The crisis is much worse than what
the economy has previously faced because of
the enormity, scale and speed with which new
investments have stagnated and the pace of
economic decay in the last six years.”
Younus of the Atlantic Council told Nikkei that
the heart of the issue is a refusal of Pakistan’s
policymakers to sustainably implement common-
sense economic policies. “A sustained obsession
with an overvalued currency, an inability to
tax the privileged and a failure to invest in
human capital are core challenges that remain
unresolved,” he said.
DANGEROUS DEBT LEVELS The main source
of Pakistan’s vulnerability is the country’s massive
foreign debt. According to the State Bank of
Pakistan, the government’s gross debt as of the end
of September was 64.5 trillion rupees ($224 billion),
roughly three-quarters of the gross domestic
product. The central bank puts the government’s
foreign owed debt and liabilities at 36.8 trillion
rupees as of September.
While debt as a percentage of GDP is not far
above the average for developing economies, the
debt service payments are crippling. Pakistan has
to pay back roughly $77.5 billion in foreign loans in
the next three years, equivalent to nearly a quarter
of its GDP. These repayments are mainly owed
to Chinese financial institutions, private creditors
and Saudi Arabia, according to an analysis by the
United States Institute of Peace.
“Yearly, billions of dollars become due, and the
only recourse seems to be the hope of securing
additional loans,” said Nadeem of BUITEMS.
Pakistan’s Ministry of Finance did not respond
to questions sent by Nikkei.
Getty Images
Pakistan’s government borrowing is high among
developing nations (General government gross debt, as percentage of GDP)
100
Forecast
80
60 Pakistan
40
Emerging markets, developing economies
20
0
2003 ‘06 ‘08 ‘10 ‘12 ‘14 ‘16 ‘18 ‘20 ‘22 ‘24 ‘26 ‘28
Source: International Monetary Fund
Despite the economic pain caused by higher
energy prices, the $3 billion standby loan with
the IMF was a rare piece of good news, with the
first $1.2 billion released in July. Such programs
are seen as a good housekeeping seal of approval
on a government’s policies and as essential to
maintaining access to capital markets.
The IMF said it had no connection to the recent
refugee policy, however. “The IMF has not engaged
with the government on policies for Afghan
refugees, which are outside the IMF-supported
program” it said in a statement to Nikkei.
Esther Perez Ruiz, the IMF’s resident Pakistan’s total
representative for Pakistan, told Nikkei that government
the loan program envisages the government debt was
implementing key reforms, notably a fully market-
determined exchange rate, a primary budget
surplus, securing the viability of the power and gas
$224
sectors, as well as inflation adjustment handouts
for the most needy, she told Nikkei.
billion
as of Sept. 30
“[Pakistan] will either have to make substantial
Source: State Bank of
concessions to crowd in bilateral support or
Pakistan
undergo an orderly restructuring of debt liabilities
if it seeks to avoid default,” Hasanain of the Lahore
University of Management Sciences said.
Malik, from Oxford University, believes
Pakistan’s foreign borrowing is unproductive.
“Pakistan borrows money to fund domestic
consumption, which results in a ballooning of
debt liabilities and interest payments,” he said.
“There will be costs to the economic reforms, and
powerful forces will lose. That’s why they do not
allow these reforms to take place. It’s about
their survival.”