March 2023

On the verge

Yvonne Gill  assesses the manifold difficulties facing Pakistan, including the factors that threaten to bring about its imminent economic collapse

Political instability, increasing jhadi terror attacks and the Pakistan army’s sheer failure to contain a Baloch nationalist insurgency, combined with hyper-inflation, a sinking economy and a severe foreign exchange crunch are staring an unnerved Prime Minister Shehbaz Sharif and his 13- party ruling alliance in the face.The omnibus alliance led by Sharif, which includes the country’s other major party, People’s Party of Pakistan (PPP) and, of course, the Sharif family-led Pakistan Muslim League (PML-N), was able to dethrone an arrogant Imran Khan after engineering defection from Khan’s Pakistan Tehrik-i-Islam (PTI) and its allies, less than year ago.

Pakistan’sdownhill journey, however, began during Khan’s regime.His personalised and ad hoc style of governance brought the country to a point where it is on the verge of defaulting on its international debt repayments obligations. The military, which was responsible for bringing Khan to power. has now changed sides and Khan, though still popular for his Islamic rhetoric and demagogic speeches, has been left to fend for himself.

‘Allah, army and the Ashrafia [the elite in Urdu] rule Pakistan,’ goes the joke. But there is a ring of truth in it. Interestingly, to an outsider Imran Khan’s Pakistan Tehrik-i-Islam sounds much like the Tehrik-i-Taliban Pakistan (TTP), the country’s largest and deadliest jihadi umbrella organization, bringing together several Pakistani Taliban groups, many having strong linkages with the Afghan Taliban. Imran Khan was soft on the TTP. During his tenure, Pakistan-Afghanistan relations were cordial. This is no so now.

Imran Khan was soft on the TTP

There is more than one factor responsible for bringing Pakistan’s economy tothe brink of collapse. Stuck in a low-growth rate cycle, the country buys goods valued atdouble the amount it earns from exports. Pakistan has accumulated a huge debt of $126.9 billion as of September 2022. This is equal to about 70 per cent of its GDP.Of the roughly $27 billion of its bilateral debts, the country owes as much as $23 billion to Chinese entities. No wonder, the government pours 40-50 per cent of its revenueinto the coffers of its debtors. After provisioning for a sizable defence budget, salaries and pensions, there is little left for development programmes and people’s welfare.

With the spike in world energy prices following the Ukraine war, inflation has risen to a 48-year high at 27.55 per cent, dangerously erodingthe value of the Pakistani rupee. Last year’s devastating floods hit agricultural production. With the ebbing rupee, imported foodstuff is becoming expensive. From PKR 176.20 to a dollar in 2021, the rupee bottomed out to PKR 276 a dollar in February this year, causing unprecedented inflation in food prices.Power shortages are widespread and many small and large industrial units have closed down. Thousands of containers packed with food items, raw material and equipment are stuck in ports due to curbs placed on foreign exchange trade by the government. The importers lack the dollars to pay for the goods they have ordered. The World Bank expects Pakistan’s economy to grow ‘only around 2 per cent in FY23’.

The country’s foreign exchange reserves dropped to an alarming $3.1 billion in January, the lowest since 2014. The country needs $20 billion over the next 12 months to meet its debt obligations, the State Bank of Pakistan (SBP) reported. Negotiations with the IMF have not yielded results. The Fund wants the government to take tough fiscal measures and guarantees to that effect from all stakeholders, including the opposition.

The powerful have always had their way in Pakistan

But there is an atmosphere of political uncertainty in Pakistan because the Sharif government’s tenure ends in August. No one is sure whether elections will be held as per schedule. The ruling alliance, as well as the military, want elections to be postponed to a future date. Although the Constitution provides for a caretaker government taking charge to conduct free and fair electionswithin 90 days, there are rumours that the army wants to install a government of ‘technocrats’ to run things till they feel that the time is ripe to hold elections. Imran Khan’s popularity is the thorn in the side of both the opposition and the military.

On February 21, Pakistan’s National Assembly unanimously passed a money bill increasing taxes to comply with IMF conditionalities. The country is seeking a USD 1.1 billion extended loan facility to avoid defaulting on its loan repayments. The government has been approaching its allies such as China and Saudi Arabia for aid, too. But these are short-term patch-up measures and will be of little helpin the long run.

An area to immediately look at is its ever-growing defence budget which needs to be drastically rationalised. The country’s defence outlay has steadily increased in nominal as well as real terms over the past decade. In 2010-11, the budget was PKR 442 billion. It increased more than two-fold to PKR 1,152 billion in 2021-22. Even when adjusted to inflation, the defence budget grew by around 33 per cent in ten years. The Pakistan military gobbles up well over 20 per cent of the government’s annual budget, whilemany army personnel pensions and expenditure in the name of national security are shown as a part of the civilian budget. Leaders and generalsjustify this huge layout by raising the bogeyman of India.

Sugar and flour mill owners form cartels to rig prices

Corruption is a bane that afflicts the military, civil administration and politicians alike. Scandals are a daily affair and most prominent politicians – including former Prime Minister Nawaz Sharif, former President Asif Zardari, present PM Shehbaz Sharif and his niece Maryam Nawaz, along with so many others – have been jail on corruption charges. It is the people’s money and public resources(including prime land) that these politicians, generals and bureaucrats have been grabbing, making themselves super rich.The people have become poorer, lacking basic amenities like health services and education for their children. Even Imran Khan has been accused of taking home expensive gifts he got as Prime Minister during his foreign visits. Allegations that his wife acted as a parallel power centre and favoured her friends and relatives have also surfaced from time to time.

The powerful have always had their way in Pakistan. Military officers, especially the top brass, have been getting prime plots and large parcels of fertile agricultural land as entitlements, both when in service and after retirement. Corruption permeates the industrial and service sectors under the control of the various wings of the armed services. Top officers enjoy perks while acting as managers at the military-controlled businesses, while making tonnes of money on the sly. Kickbacks from defence purchases line the pockets of the powerful general and rarely is anyone punished.

TAINTED: Prominent politicians including former PM Nawaz Sharif (l) and former President Asif Zardari have been jailed in corruption charges

The civilian elite, comprising oligarchs, real estate sharks, bureaucrats and landlords, have heavily contributed to hollowing out the country’s coffers and grabbing contracts, mining leases and other resources in cohort with politicians. Sugar and flour mill owners form cartels to rig prices. Most politicians have businesses, ranging from sugar mills to real estate. It is a complicated nexus between politicians and businesses which does not provide a favourable environment for investment. And worse, tax evasion is the norm.

The ills that ail Pakistan’s economy are deep-rooted. First, there is a lack of civilian supremacy, and that needs to be established. Right now, a large part of the country’s economy is controlled by the military without any public accountability. Corruption is another area of concern. And finally, the security environment, vitiated by jihadi groups sponsored by the Pakistani military establishment and splinter terrorist groups, needs to be tackled with an iron hand. Unless this happens, Pakistan will continue its downhill journey, ending up perhaps as a failed state.

Yvonne Gill is a freelance journalist based in London