Caretakers outperform PDM in debt management

In a rare comparison before leaving portfolio on completion of about six months, caretaker Finance Minister Dr Shamshad Akhtar on Thursday claimed better debt management — domestic and external — from all aspects than her predecessor Ishaq Dar in the PDM-led coalition government.

“Borrowings in the caretaker government’s term have been lower as compared to the preceding period”, although they inherited tougher conditions, said the Ministry of Finance in a statement.

It said the bulk of the borrowings raised in the last few months of caretakers was to meet debt repayment obligations including principal and interest expense liabilities as the caretaker government focused primarily on fiscal consolidation measures including revenue mobilization and expenditure rationalization.

Shamshad added US$300 million to foreign loans as against US$3 billion by Dar.

“The caretaker government inherited a policy rate of 22pc, which was the highest ever since 1972. The average policy rate during the preceding period was almost 19.5%,” the MoF said.

The caretaker finance minister did not blame the principal accounting officer (PAO) Imdadullah Bosal for ‘inferior performance’ under Ishaq Dar, nor gave him credit for ‘better management’ under Shamshad Akhtar.

As Secretary Finance, Bosal served under Dar for four months and with Dr Akhtar for six months. As such, the comparison is left entirely between Senator Dar and Dr Akhtar.

Improved profiling

“Over a short stint, with careful debt management operations, the caretaker government has managed to improve domestic debt profile,” said the statement, adding that the three-pronged approach — extending the maturity of government securities, raising debt on margin below the policy rate and tapping non-bank and retail investors through the capital market.

It said the focus was on reducing borrowings from government securities through the banking sector. As a result, the borrowing through government securities fell by 67% in the caretaker government’s term as compared to the preceding period”.

It said that the Dar-led Ministry of Finance contracted PKR19.862 trillion worth of domestic debt through government securities and paid out PKR14.031 trillio, with a net addition of PKR5.831 trillio. As against this, Dr Shamshad-led MoF contracted slightly lower domestic debt of PKR19.83 trillio in similar coupons but paid out an amount of PKR17.934 trillio, with a net reduction of PKR1.896 trillion.

Likewise, the “caretaker government successfully retired short-term Treasury Bills (T-Bills) amounting to PKR1.6 trillio, contrasting with around PKR3.3 trillio raised in the preceding period” under Dar’s oversight. This helped in reducing the gross financing needs of the government.

Domestic borrowings

Moreover, the caretaker government claimed that it shifted its domestic borrowing to long-term debt securities for the financing of fiscal deficit. Out of medium to long-term instruments, major borrowing remained from floating rate securities, while fixed rates instruments were borrowed on average at 3 to 4 percent below the central bank’s policy rate during the caretaker government period, it said.

Resultantly, the average time to maturity of domestic debt has increased to around 3 years by the end of January 2024 as compared to 2.8 years at the end of June 2023. This is in line with the targets mentioned in the Medium-Term Debt Management Strategy (MTDS) FY23-FY26 and a step in the right direction to meet the end-June 2024 target of 3.1 years.

It said the Dar-led MoF borrowed PKR3.877 trillion through Pakistan Investment Bonds (PIBs) and Ijara Sukuk in six months preceding August 16, against the outflow of PKR1.353 trillion, showing net inflows of PKR2.524 trillion. In comparison, Shamshad-led MoF borrowed PKR6.017 trillion in Sukuk and PIB against an outflow of PKR2.517 trillion, showing a net inflow of PKR3.5 trillion.

External debts

On the external side, the share of external debt in total public debt was 38.3% as of end-June 2023 which was reduced to 36.7% at end December 2023. This helped to reduce the foreign currency risk of the total public debt in line with the targets defined in the MTDS FY23-FY26.

“During caretaker government, the net external debt inflows were around US$0.3 billion, which was lower as compared to (more than US$3 billion) preceding period. Furthermore, no expensive external borrowing was raised from commercial banks and international capital markets during the caretaker government,” the statement said.

Giving details, the statement said the external public debt inflows were at US$8.4 billion in the concluding six months of the previous government against US$5.4 billion outflows, leaving a net addition of US$3 billion. However, inflows during the caretaker government stood at US$3.9 billion as compared to US$3.6 billion outflow, a net increase of US$300 million.

Based on the comparison, the ministry advocated for prudent debt management including breaking the nexus with the banking sector for excessive borrowing.

“Besides fiscal and external current account sustainability and privatizing state-owned companies, it is critical to pursue prudent debt management backed by reducing sovereign-bank nexus to avoid overburdening banks with public sector debt, while reducing private sector crowding out,” the caretaker finance minister’s office concluded.

 

Pakistan likely to sink deeper into debt trap

Despite remaining under International Monetary Fund (IMF) surveillance for decades, the successive governments in Pakistan have failed in undertaking ‘structural adjustment programs’ that could allow the country to live without entering into one after another bailout packages.

The most regrettable point is that the lender of last resort has not come up, at its own or facilitated Pakistan, in coming up with any ‘home grown plan’. Every time the country is told to undertake a slew of measures that include revising its budget (curtailing developmental expenditures and subsidies), hike in interest rate, and increases in electricity and natural gas tariffs.

Neither the IMF nor the policy planners understand that all such measures erode competitiveness of Pakistani manufacturers and push more and more people poverty the poverty line. On top of all no quantitative restrictions are imposed on the import of unnecessary/ luxury goods.

According to Bloomberg News, Pakis­tan plans to seek a new loan of at least US$6 billion from the International Monetary Fund (IMF) to repay billions in debt due this year, which can be termed, borrowing more to pay off the outstanding liabilities.

The country will seek to negotiate an Extended Fund Facility with the IMF, the report said, adding that the talks with the global lender were expe­cted to start in March or April.

Although a default was averted last summer thanks to a short-term IMF bailout, but the program expires in April and the country will have to negotiate a long-term arrangement to keep pay off the outstanding loans.

The country’s vulnerable external position me­ans that securing fina­ncing from multilateral and bilateral partners will be one of the most urgent issues, Fitch said on Monday.

“A new deal is key to the country’s credit profile, and we assume one will be achieved within a few months, but an extended negotiation or failure to secure it would increase external liquidity stress and raise the probability of default,” it said.

 

Pakistan Election Results, USIP Perspective

Days after Pakistan’s February 08 general election, the Election Commission of Pakistan released the official results confirming a major political upset. Contrary to what most political pundits and observers had predicted, independents aligned with former Prime Minister Imran Khan’s Pakistan Tehreek-e-Insaf (PTI) won the most seats at the national level, followed by former Prime Minister Nawaz Sharif’s Pakistan Muslim League-Nawaz (PML-N), the Pakistan Peoples Party (PPP) and the Muttahida Qaumi Movement (MQM). No party won an absolute majority needed to form a government on its own, says a report released by the United States Institute of Peace (USIP).

The resultant uncertainty means the United States may have to contend with a government that is more focused on navigating internal politics and less so on addressing strategic challenges.

On the one hand, the most likely scenario appears to be a coalition government that may struggle to muster the political strength to push through much-needed economic reforms and take on serious governance and security challenges.

On the other hand, several contenders have raised allegations of vote tampering that will call into question the credibility of a future government.

PTI-aligned candidates in particular claim that the delays in the final announcement of results are evidence of irregularities. Even before the election, it was clear that the electoral playing field was being tilted against the PTI.

The US State Department has noted allegations of interference in the electoral process and called for a full investigation. In its preliminary report, Pakistan’s polling watchdog, Free and Fair Election Network, noted that there was transparency at the polling stations, but it was compromised at the vote counting and tabulation stage.

Despite not winning the most seats, the PML-N is now trying to cobble together a coalition government with the PPP and MQM — as these parties together have a near majority of seats, which is required to form a government.

It has also nominated former Prime Minister Shehbaz Sharif — Nawaz Sharif’s brother — to lead the coalition as the new prime minister.

For its part, the PTI has announced intent to form a government at the center as well as in the provinces of Punjab and Khyber Pakhtunkhwa, but it is unclear who it will ally with to get the majority required to form a government.

It is more likely that PTI-aligned candidates will sit in the opposition in the national assembly, as the party has made clear it will not ally with either the PML-N or PPP.

The victory of PTI-backed candidates defies the expectations of political pundits in Pakistan. It was widely anticipated that the PML-N would win and the PTI would lose the election.

At the heart of this projection was the state of the relationship between Khan and Pakistan’s powerful military establishment, which was seen to be backing the PML-N’s return to power and blocking Khan and his PTI.

Khan fell out with the military when his government was deposed in a vote of no confidence in 2022, which he charged was a regime-change operation orchestrated by the military with the United States.

His party has been in the line of fire since May 09, 2023, when its supporters attacked military establishments across the country. Khan himself has been in prison since last year due to several cases charging him with graft and improper handling of classified information, which meant he was unable to campaign for his party in the election.

Perhaps most significantly, leading up to the election, the PTI was also denied its election symbol (a cricket bat) by the Pakistani Supreme Court, which was widely seen as part of a broader campaign to tilt the electoral playing field against the party.

The fact that despite all these measures, PTI-backed candidates won such a large share is a remarkable outcome, making the 2024 election one of the most significant elections in contemporary Pakistani history.

One way to read the vote is that the Pakistani people have rejected the two traditional, dynastic parties — the PML-N and PPP — and embraced Khan’s aspirational, populist political platform.

Another way to read the outcome is that it is also a rejection of the military establishment’s role in politics, in particular its opposition to the PTI and the clampdown against the party since last year.

The results also point to Pakistanis’ discontent with the country’s overall trajectory and the electoral process being a solution to the challenges facing the country.

According to Gallup, Pakistanis are deeply pessimistic about the country’s economic future and they also question the fairness of the electoral process — before the election, seven in 10 Pakistanis said they lacked confidence in the honesty of the elections.

 

Pakistan: Instability coming down the road

Pakistan’s elections held on February 08, were meant to bring stability to the country after almost two years of turmoil but the outcome of the polls has deepened political divisions. It will also bring more instability to a nuclear-armed, 240-million strong country already shaky at best in a critically important geostrategic region.

In the months leading up to the long-awaited elections, the judiciary and the military pursued a dual track strategy: ensure that the highly popular former prime minister, Imran Khan, is never able to run for political office again and reinvigorate the political fortunes of Nawaz Sharif, the three-time former prime minister and leader of the Pakistan Muslim League (Nawaz).

Following his loss of power in a parliamentary vote of no confidence in April 2022, Khan was relentlessly pursued by the judiciary which eventually handed him three sentences for corruption, leaking state secrets and an illegal marriage, for a total of 24 years. He was barred from politics and sent to gaol. His Pakistan Justice Movement (PTI) was disbanded, its electoral symbol (the cricket bat) outlawed, and its members banned from running as PTI members.

Nawaz Sharif—a convicted corrupt politician who’s had an ambivalent relationship with the army for 40 years, was brought back from a four-year self-exile in London as an alternative to Khan. Soon after Nawaz’s return to Pakistan the corruption charges he faced were dropped and his life ban from politics was lifted.

The path was now clear for his smooth return to power. However, what was meant to be a walk in the park for Nawaz and the PML(N) turned out very differently on election day. The millions of pro-Imran Khan supporters were not interested in singing off the score sheet handed over to them.

Even with all the measures taken to ensure there was no level playing field, and the ballot stuffing at a number of polling stations, the PML(N), was only able to win the second largest number of seats (75).

The former PTI members—running as independents—won the largest number of seats, 93 of the 266 up for grabs. The independents’ total seats could increase as they are contesting the result of over a dozen others they claim have been stolen from them. Nevertheless, Nawaz declared victory, and will try—with great difficulty, to form a coalition government with the Pakistan People’s Party (PPP) of the late Benazir Bhutto. The only bond between the PML(N) and the PPP is that their hatred of each other is slightly less than their hatred of the PTI.

International reaction to these elections, including from the US, the UK and the EU, was negative, with several countries calling for investigations into the allegations of vote-tempering and pre-poll obstructions. The Australian government also made it clear that that it was concerned that ‘the Pakistani people were restricted in their choice, since not all political parties were allowed to contest these elections’.

Notwithstanding the evidence to the contrary, much of it posted on social media platforms even though mobile internet connections were restricted, the Chief of Army Staff, General Asim Munir, commended the Electoral Commission for running such a successful election and stressed the significance of free and unhindered participation by Pakistani people in exercising their right to vote.

Similarly, the caretaker prime minister, Anwaarul Haq Kakar, believed that the ‘nation had accepted the results’ and the country needed to move on. Moreover, he brushed aside international criticism of the elections as ‘not that big a deal’.

Despite the compromised nature of these polls, a PML(N)-led coalition government is the most likely—but not certain—outcome of the elections. According to the latest reports, it would be led by Shehbaz Sharif, Nawaz’s younger brother who was prime minister after Khan was ousted in April 2022.

The real power will still be held behind the scenes by Nawaz Sharif. Given the fragility of the coalition, which will include smaller parties and non-PTI-leaning independents, this will be a weak government with little legitimacy. This is unfortunate given that whoever is prime minister will have to make some particularly difficult decisions on the economy, handle adroitly the country’s foreign relations, and manage a growing terrorist threat.

Pakistan is an economic mess, with 40% of the population living under the poverty line, an inflation rate that has hit 30%, a rupee whose value has halved in 10 years, and barely enough foreign exchange to cover the cost of imports for a month or so.

The country avoided economic meltdown in August 2023 by securing a standby arrangement of US$3 billion with the IMF. However, this bailout runs out in March and a new one—the 24th in Pakistan’s history—will need to be negotiated.

The IMF will undoubtedly demand that the government implement more austerity measures, including continuing to reduce subsidies on essential commodities. Imposing draconian economic measures on an already struggling population will not be easy, particularly given Nawaz’s lack of popular support. We can expect serious social unrest down the road.

A Shehbaz-led government will also have to deal with the growing terrorist threat, mainly but not solely from the Afghanistan-based Pakistan Taliban (TTP), which has continued to increase since the Taliban took over in neighbouring Afghanistan in August 2021. Pakistan has repeatedly demanded that the Taliban government of Afghanistan cease to support the TTP. But the Taliban isn’t about to turn on the TTP, an organisation with which it has deep ideological, operational, historical and tribal links. Kabul also knows that the Pakistani military doesn’t want to escalate this issue by pursuing the TTP unto Afghan territory. Moreover, given Pakistan’s poor fiscal position, it cannot afford another expensive military operation. Accordingly, Pakistan-Afghan relations will probably continue to be frozen, and the scourge of terrorism to fester.

This will not be well received by the leaders in Beijing who persistently press Pakistan to do more against the terrorists roaming the countryside regularly killing Chinese workers and officials working on the US$60 billion China-Pakistan Economic Corridor (CPEC).  Pakistan already has some 10,000 security personnel dedicated solely to the protection of Chinese interests in Pakistan. Still, relations with China will continue on an even keel or even deepen. It was after all under Nawaz’s third stint (2013-2018), that CPEC started.

Pakistanis can expect Indo-Pakistan relations to possibly improve. The personal dynamics between Nawaz and Indian PM Narendra Modi have been good in the past. Nawaz attended Modi’s 2014 inauguration and Modi visited Nawaz in Lahore in December 2015—the first visit by an Indian leader in more than a decade. But while Nawaz would probably be interested in improving relations with Delhi, it was the perception that he was warming up too much to the Indians when he was in power which critically contributed to the military orchestrating his downfall in 2017. Shehbaz, under the guidance of Nawaz, is unlikely to make the same mistake.

Despite Washington’s public criticism of Pakistan’s seriously flawed election, the Biden administration is committed to ‘strengthening its security cooperation’ with Islamabad regardless as to who eventually becomes prime minister. Pakistan continues to be a valuable regional partner, being in a unique position to monitor developments in Afghanistan.

Finally, whilst Washington may have had issues with the election process, it will absolutely not miss Imran Khan, who repeatedly accused the US of having been instrumental, with the help of Pakistan’s military, in his downfall in April 2022.

US Secretary of State meeting with General Asim Munir—the man who effectively runs Pakistan, in Washington only a few weeks before the elections only reinforced this common perception in Pakistan. However, given Munir’s massive miscalculation on the elections, his days may well be numbered.

How long the next prime minister will last in office is anyone’s guess, but given that no prime minister has ever completed their term in Pakistan’s 75-year history, it is suspect the odds are poor that Shehbaz Sharif will break that tradition.

Courtesy: The Strategist

 

Independents: Game Changers or Spoilers

Pakistanis are still in suspense about which political party will emerge victorious in the latest general elections, leaving uncertainty regarding the next government and prime minister even after four days of intense competition.

Despite facing challenges such as the detention of a former prime minister and obstacles for the Pakistan Tehreek-e-Insaf (PTI), independent candidates supported by the party have surprised observers by securing a substantial number of National Assembly seats, the highest among all parties. However, this falls short of the 169-seat simple majority needed to form a government.

The Pakistan Muslim League Nawaz (PML-N), led by another former prime minister, Nawaz Sharif, secured the second position. Despite expectations of an easy victory, backed by the influential administration, Sharif's return to power remains uncertain, five years after his disgraceful departure from Pakistan.

The Pakistan People’s Party (PPP), led by Bilawal Bhutto Zardari, claimed the third spot.

The constitutional deadline for political parties to establish a government is February 29, three weeks after election day. The National Assembly comprises 336 seats, with 266 determined by direct voting and 70 reserved for women (60) and non-Muslims (10), allocated based on each party's strength.

Given the fragmented mandate without a clear majority, political parties must find common ground or consider forming a coalition to govern. Despite both independent candidates and PML-N declaring victory, a coalition government seems inevitable.

Potential scenarios include a coalition between PML-N and PPP, though the choice for the next prime minister poses a challenge. Another possibility is a PPP alliance with Khan’s followers, although the PTI may choose to sit in the opposition rather than forming a coalition, according to Khan's media advisor, Zulfi Bukhari.

A less likely scenario involves PML-N forming a coalition with PTI and other parties, acknowledging that PTI's influence cannot be disregarded. Some voters, even those who did not support Imran Khan earlier, express a sense of injustice in the way the administration has treated him and his party over the past two years.

Another option involves PTI-backed independents merging with smaller parties to create a coalition government, combining their seats and capitalizing on the 60 National Assembly seats reserved for women. However, the PTI's ability to form a coalition government seems improbable, as alliances with smaller parties still fall short of a majority.

For the PTI, reaching out to smaller parties may lack numerical advantages, serving more as a legal requirement than a strategic move to gain substantial support. The uncertainty surrounding the formation of the next government adds complexity to the post-election landscape in Pakistan.

Pakistan: Election outcome not likely to resolve political crisis

Lackluster from the beginning, the exercise concluded with a whimper last evening. Amidst limited reporting due to the suspension of communication services, there were some reports of delays in the polling process and various violations of rules and the election code of conduct.

Thankfully, no major incidents of violence were reported and voting seems to have concluded in most places smoothly and uneventfully. It seems that all that remains now is the counting of votes and declaration of winners. As results trickle in overnight, we will learn how many chose to exercise their right to franchise on this historic occasion.

Till a clearer picture emerges, some reflections on the exercise: These elections had been critical for Pakistan for various important reasons.

The country is mired in unprecedented economic and social challenges, which cannot be solved except by a stable government that enjoys strong public support for its decisions.

Given its dependence on international assistance, it is also important for it to stabilize socially so that lenders and investors can feel safe about their decisions. With so many different forces pulling the country at its seams, it was almost good luck that a general election became due last year.

All that was needed was for the Election Commission of Pakistan (ECP) to let the candidates campaign without restrictions, prepare the grounds for a clean and non-controversial contest, assist the country’s adult population in freely exercising their right to self-determination, conduct a transparent count of their ballots, and quietly and respectfully bow out.

As history will bear witness, ECP failed on almost all of those counts. From repeatedly delaying the elections on one pretext or the other to failing to protect the legitimacy of its last act, it betrayed its mandate by organizing an exercise that will be remembered for all the wrong reasons.

It is difficult not to be disappointed: given the number of times the ECP hid behind the Constitution’s ‘free and fair’ condition to justify putting them off ‘till it was ready’, one would have imagined the exercise, whenever it was eventually held, would be largely irreproachable.

Of course, the blame does not lie with the ECP alone. The caretaker government and the entire machinery of the state are equally culpable in robbing it of its sanctity. Their actions worsened political polarization, and they did not know when to stop.

As a result, the exercise was doomed to controversy well before it began. It already seems clear that it will not provide any closure for the country’s political crisis.

Crisis and instability will likely continue to plague the nation, with dissent kept in check through the use of fear tactics. It is a shame that such a momentous opportunity has been so carelessly lost.

Courtesy: Dawn

Next Prime Minister of Pakistan

Who will emerge as the next Prime Minister of Pakistan remains a topic of speculation following the recently conducted general elections on February 8, 2024?

Despite the overall peaceful conduct of the elections, a notable hiccup was the complete shutdown of mobile phones. While the voter turnout was reasonably good, there were areas where the election arrangements could have been more efficient.

In Karachi, candidates from PML-N and PPP garnered attention due to the allocation of proper symbols, but PTI sympathizers faced confusion with different symbols in each constituency. Jamat-e-Islami also stood out, having invested a significant amount of money, especially in conventional and social media.

The political landscape now has analysts and pundits in a state of perplexity, fearing the absence of a two-thirds majority for any political party.

The potential outcome could be a hung parliament, leading to the necessity of political parties forming unconventional alliances, complicating the governance of the country.

Concerns also arise regarding the likelihood of extensive "Horse Trading," particularly if independent candidates secure a significant number of wins.

Moreover, there is apprehension that the ensuing government might struggle to formulate sound economic policies, contributing to a lack of focus on both economic and foreign policy matters.

It is crucial for the incoming government, regardless of its leadership, to prioritize and address economic and foreign policy issues to steer clear of uncertainties and potential challenges posed by turncoats.

Democracy in Pakistan on Rough Terrain

Pakistan has survived many odds but the recent phenomenon of growing extremism, sectarian killing, elimination of political opponents and even the killing of doctors and academicians seems part of the grand agenda to plunge the country deep into anarchy. If the road to democracy leads from here, then it is quite a rough terrain.

Among the South Asian countries, Pakistan has the second largest population after India. Both the countries got independence from the British Raj with a difference of one day in August 1947. While India has earned the distinction of becoming a secular state and one of the largest democracies of the world, Pakistan has spent most of its time under autocratic rule, both military and civilian.

The younger generation often wants to know the reasons for the continuity of democratic rule in India and Pakistan staying under military rule for a very long time.

They also wish to understand the logic behind the ‘Charter of Democracy’ (CoD) that was signed between two of Pakistan’s largest political parties, PPP and PML-N.

There exist two opposite opinions about the CoD: first, it is an understanding reached between two political parties to avoid yet another military rule. Second, under the prevailing geo-political situation, the superpowers wish to keep the reins in the hands of elected representatives rather than supporting any military rule.

Some cynics say that political parties have learnt a lesson from the assassination of three elected Prime Ministers i.e. Liaquat Ali Khan, Zulfikar Ali Bhutto and Benazir Bhutto.

They also believe that PPP and PML-N now regret lack of understanding among themselves which led to dismissal of the governments of Nawaz Sharif and Benazir Bhutto. Nawaz Sharif has earned the distinction of being elected prime minister for the third time after the assassination of the charismatic leader, Benazir Bhutto.

Analysts watching geopolitics stringently believe that superpowers install and topple regimes around the world to pursue their foreign policy agenda and Pakistan is no exception.

The most talked about personalities are Anwar Sadat of Egypt, Benigno Aquino of the Philippines, Saddam Hussain of Iraq and General Zia ul Haq of Pakistan. All these political leaders were assassinated once the missions assigned to them were accomplished.

To this list, names of Indra Gandhi, prime minister of India and two Prime Ministers of Bangladesh, Sheikh Mujeeb ur Rehman and Zia ur Rehman could also be added. Sri Lanka has also been a victim of this tyranny.

While it is almost impossible to analyze Pakistan’s history spread over more than seven decades, one point is very clear – that the three military rulers were installed by the superpowers to maintain their hegemony in the region.

The rule of General Mohammad Ayub Khan (1958 to 1969) was facilitated because of the cold war. At that time Pakistan was made part of the South East Asia Treaty Organization (SEATO) and the Central Treaty Organization (CENTO), US-led defense pacts against communism.

After the fall of Dacca, Pakistan had no option but to pull itself out of SEATO during the regime of Zulfikar Ali Bhutto and CENTO died its natural death in 1979.

At one time, the USSR was highly annoyed and wanted to attack Pakistan because US spy planes were using an airbase located near Peshawar to snoop over the Soviet Union.

The second military regime of Zia ul Haq (1977 to 1988) was support by the US in the name of averting a Soviet attack on Afghanistan, termed an attempt by the USSR to get access to warm waters. The Afghan war, spread over nearly a decade, was fought from Pakistan’s GHQ and religious parties were given money to prepare the breed of Mujahedeen, now often referred to as the Taliban.

Once the decision was made to pull out the US-led troops in the belief that the USSR had been defeated, the entire military junta of the time became redundant. Zia ul Haq and his close generals died when their plane was blown up.

The killers were so desperate that one of the youngest and most outstanding ambassadors of the US and a Brigadier General also died as they were travelling with Zia ul Haq and other generals on the plane.

It is often said that General Pervez Musharraf took over after a failed attempt of the then prime minister Nawaz Sharif to get rid of him by not allowing his plane to land in Pakistan. But some cynics say Nawaz Sharif provided an opportunity to the military to topple his government.

The superpowers may not have liked Pervez Musharraf initially but he became their darling after he decided to become a partner in the US war against the Taliban regime in Afghanistan.

Pervez Musharraf got ‘red carpet’ receptions in the US and other western capitals for being their frontline partner in ‘war against terrorism’. He was kept in power till the decision was made to withdraw the majority of NATO troops from Afghanistan by 2014.

To give legitimacy to his rule, general elections were held in Pakistan. His exit from power looked a little strange to those who are not familiar with ‘conspiracy theories’. Some critics say he had also become redundant like Zia ul Haq.

The formation of an elected government under Pervez Musharraf was a replica of the elected government led by Mohammad Khan Junejo, which was termed a ‘legitimization of the Zia regime’ but an unceremonious dismissal of the Junejo government opened the Pandora’s Box.

Pakistan’s joining hands with the US during the Zia era to repel the USSR and fighting a proxy war in Afghanistan gave various ‘gifts’ to the country. These included – religious extremism, drugs and arms.

The presently prevailing precarious law and order situation in Pakistan can be termed as a combination of these stated elements. The democracy as prevalent today is also a hostage of these elements.

Some political analysts say that during the latter part of his regime and prior to the general elections, Pervez Musharraf was advised by the superpowers to join hands with Benazir Bhutto to ensure continuity of democratic rule in the country as this could also prolong his rule.

Prior to her landing in Pakistan, Benazir Bhutto was told to join hands with Pervez Musharraf. But serious differences emerged between Benazir Bhutto and Pervez Musharraf. She was later assassinated and her widower Asif Ali Zardari replaced Pervez Musharraf as the President of Pakistan.

It looked like a reenactment of the assassination of Benigno Aquino in the Philippines and his widow Cory Aquino becoming president of the country.
Though, the inference is highly sordid but the fact is that politicians in Pakistan know it very well that if they wish to come to power, they have to pursue the agenda of superpowers.

It is often an elected or autocratic government but it remains in power due to the external support that includes financial assistance from multilateral donors like IMF, World Bank and Asian Development Bank or arms supplied in the name of ‘maintaining minimum deterrence level’ against Pakistan’s enemies.

 

Pakistan Elections 2024: Likely Outcomes

According to a report by Pakistan’s leading brokerage house, Topline Securities, after a lot of uncertainties, Pakistan Elections are all set for February 8, 2024, to elect representatives for the National and Provincial Assemblies for the next five years.

Many political analysts a few weeks back were not sure about timely elections due to legal, operational, and weather-related issues. Now it seems that all these issues have been settled, and the process is likely to be completed on time.

According to detailed strategy note titled 'Stock Market Recovery Has Just Begun; Index Likely to Reach 75,000 in 2024,' dated November 18, 2023, mentioned that things are now looking stable, and elections are likely to happen on February 8, 2024, contrary to earlier fears that elections may be delayed for a few years.

A smooth transfer of power to an elected government will help overcome concerns of bilateral and multilateral lenders, including the IMF, at a time when Pakistan is facing a severe external debt repayment challenge.

IMF in its country report in July 2023, stated that the new Stand By Agreement (SBA), can play a crucial role in anchoring policies ahead of the national elections due in the fall and until a new government is formed. IMF team also met with leaders of major political parties in Pakistan to get assurances of support for key objectives ahead of final approval of US$3 billion SBA in July 2023 crucial to save the country from default.

With only two weeks left for the Elections, political activities and election campaign is not what it used to be. This could be due to lack of interest by political parties or may be due to lesser competition in most of the constituencies after PTI did not get the “Bat” symbol.

Looking at the manifestos and promises of major parties, it seems no one is addressing the key economic challenges faced by Pakistan. Most of the parties are focusing more on the popular measures to gain public confidence amid record high inflation.

Comparing the performance of three large political parties in their last tenure, PML-N and PTI have performed relatively well on key economic indicators as against PPP. This has also being endorsed by a recent news analysis by Bloomberg whereas per Misery Index, PML-N (score 14.5%) has better record on managing the economy followed by PTI (score 16.1%) and then PPP (score 17.2%).

Considering the recent developments, the question investors are interested in is not who will win the elections but whether the new government will get a majority or if it will be a weak coalition government. As reported by leading political experts, it looks like PML-N will form a new coalition government. This is also supported by few recent surveys.

The brokerage house believes that in case one party gets 50% plus seats, that will definitely boost investors' confidence and markets will react positively. This will also give a positive signal to the IMF and other lenders. On the contrary, a coalition government with support of smaller parties will remain fragile and may struggle to implement the much-needed economic reforms.

Another key area to look for is how the new government will manage economic challenges, especially to deal with the IMF for a long-term program. Considering the not-so-pleasant experience with the PML-N nominated Finance Minister in the last opposition-led government of PDM, investors are eager to see the finance team of the new government.

The new government and its Finance Minister can play a significant role in negotiating with friendly countries for debt rollover/debt re profiling and finalizing a new IMF program that requires a lot of painful reforms.

Furthermore, it will be interesting to evaluate the new government's relationship with the establishment. Pakistan has a poor history of worsening civil-military relationships that have badly affected the political continuity, with negative implications for the economy and the markets.

Pakistan Stock market recovery is likely to continue in the year 2024. The brokerage house expects benchmark KSE-100 total return index to reach 75,000 by December 2024. However this is based on current low PE multiples without assuming any re rating amid high risk of debt sustainability. Investors may also see a post election rally in line with historical trend.

Smooth transfer of power to new government after elections, new long term funding program from IMF and expected fall in Interest rate will be the key drivers of equity market in 2024.

In spite of recent rally, Pakistan market is currently trading at PE of 3.7x based on 2024 estimated earnings. This is far lower than last 5 year and 10 year average PE of 6x and 8x respectively. This is even lower than countries that have defaulted on external debt. 

The brokerage house prefers high quality private sector companies with strong cash flows. In cyclical sectors it prefers Cement and Steel due to expected decline in policy rate and better volumetric sales. It also likes Banks due to unmatched valuation.

Its 2024 top picks include Meezan Bank (MEBL), United Bank (UBL), MCB Bank (MCB), Mari Petroleum (MARI), Lucky Cement (LUCK), Maple Leaf Cement (MLCF), Fauji Cement (FCCL), Engro Corporation (ENGRO), Pak Elektron (PAEL), Indus Motors (INDU) and Interloop (ILP).

On the other hand some mid and small caps have the potential to provide above average gains that includes Pakistan Aluminium Beverage Cans (PABC), Mughal Iron & Steel (MUGHAL), Image Pakistan (IMAGE), Tariq Glass (TGL), Century Paper & Board (CEPB), Panther Tyre (PTL), and Murree Brewery (MUREB).

 

USIP highlights Implications of Iranian attack on US Policy

While the US policymakers and the broader policy community are accustomed to Iranian aggression — mostly through proxies — across the Middle East, direct Iranian military strikes in Pakistan are a novel development for them.

The strikes will only reinforce US leaders’ perception of Iran as a reckless actor.

In line with that, the State Department issued a statement condemning Iran’s actions against Pakistan — and disputed the Iranian charge against Pakistan by calling Iran the “leading funder” of terrorism and instability in the region.

As for a Pakistan policy perspective, it is in United States’ interest that there is no further regional flare-up involving Pakistan which destabilizes the country at a time of economic and political stress.

Policymakers will also hope for a de-escalation to not jeopardize, or at least not disrupt, ongoing counterterrorism cooperation with Pakistan on Afghanistan.

Beyond the immediate standoff, some policymakers and US Central Command, which maintains strong ties with Pakistan, may see synergies with a Pakistan feeling threatened by Iran to balance Iranian military and proxy power in the region.

Iran-Pakistan tensions are not endemic, with incentives on both sides to maintain a functional relationship.

This basic diagnosis of Iran-Pakistan relations, combined with the United States’ Indo-Pacific priorities and uncertainty in Pakistan about working with the United States on Middle East issues, will put a ceiling on any cooperative agenda around nefarious Iranian activities in the region.

USIP rationale Iran attacked Pakistan

In a surprising turn on January 16, Iran launched missile strikes into Pakistan’s Baluchistan province, claiming it had hit two strongholds of anti-Iran insurgent group Jaish al-Adl (Army of Justice). Many Pakistanis are perplexed and just could not find the reasons for Iranian assault. Following is the logic offered by United States Institute of Peace (USIP) behind Iranian attack on Pakistan.

Iran’s calculus remains difficult to know — and Pakistan and other countries are left wondering what prompted Iran to take such a radical step against a more militarily powerful neighbor.

Iran’s logic of striking Pakistan remains opaque. On the face of it, Iran claims it struck terrorist cells of the Jaish al-Adl, which Iran says has a haven in Pakistan and implying also that the group has links to Israel.

Jaish al-Adl is a US-designated terrorist group fighting the Iranian regime with the goal of securing political and economic rights for the ethnic Baluch and Sunni in Iran.

On December 15th of last year, the group carried out an attack on a police station in the town of Rask, in Iran’s Sistan-Baluchistan province, killing several police officers.

Iranian logic that a preemptive strike against Jaish al-Adl is in response to the Rask attack doesn’t fully explain the attack.

Jaish al-Adl enjoying a haven in Pakistan with purported help from the external actors has been a long-standing Iranian complaint, but Iran has not struck Pakistan in cross-border raids before and hasn’t indicated an intent to undertake cross-border strikes of late.

There are two other possibilities for why Iran may have targeted Pakistan.

First, Iran may well be seeking to broaden the ongoing regional conflict and decided to draw Pakistan into the mix. If this is driving Iran, we may see more Iranian action in Pakistan.

Second, Iran may be attempting to force regional countries, including Pakistan, to rethink their preexisting alignment with the United States and to not offer further help that might allow the United States to counter Iran or its proxies in the region.

USIP view of Pak Iran relations

In a surprising turn on January 16, Iran launched missile strikes into Pakistan’s Baluchistan province, claiming it had hit two strongholds of anti-Iran insurgent group Jaish al-Adl (Army of Justice). Many Pakistanis are perplexed and just could not find the reasons for Iranian assault. Following is the narrative offered by United States Institute of Peace (USIP) on Iran-Pakistan relations.

Iran announced the attack in Pakistan concurrent to its strikes in Iraq and Syria. Less than two days later, Pakistan hit back with not only missiles but also fighter jets in Iran’s Sistan-Baluchistan province — claiming to target hideouts of anti-Pakistan ethno-nationalist insurgents operating from Iranian soil.

This sudden escalation and military hostilities between the two neighboring countries come at a time of heightened regional tensions, with Iranian-backed militias in Iraq carrying out near-daily attacks on bases with US forces in Iraq and Syria and escalation in the Red Sea due to another Iranian-backed entity, the Houthis, targeting global shipping.

Still the attack in Pakistan is unique. Relations between Iran and Pakistan have been generally peaceful and border skirmishes between the two sides have been minimal, or at least contained very close to the border and downplayed by both sides. This time, by announcing the attack, Iran broke from that trend.

Since the revolution in Iran in 1979, ties between Iran and Pakistan have been functional, and in periods warm, but ultimately not particularly strong. While Iran-Pakistan people-to-people exchanges are the strength of the relationship, there have been political grievances toward the other on both sides.

Iran’s Shia theocratic regime, for example, has felt ideologically discordant with Sunni-majority Pakistan. Pakistani leadership has also at times viewed the relationship through a sectarian lens, though the salience of the sectarian rift is much less acute compared to Iran’s ties with countries in the Persian Gulf region, as Pakistan has a sizable Shia minority.

Iran has also had a negative perception of Pakistan due to its strong relations with geopolitical forces opposed to Iran: the United States and Gulf powers, especially the United Arab Emirates and Saudi Arabia.

For Pakistan’s part, it has seen Iran as a difficult and not very useful neighbor due to its pariah status in the West.

Iran has also had a closer relationship with Pakistan’s archrival India, and Pakistani leaders have long suspected Iran of supporting and providing haven to anti-Pakistan ethno-nationalist groups.

Iranian foreign minister to visit Pakistan

Iranian Foreign Minister Hossein Amir Abdollahian is expected to pay an official visit to Pakistan next week.

On Monday, the Iranian foreign minister and his Pakistani counterpart, Jalil Abbas Jilani, released a joint statement following a phone call.

Amir Abdollahian will travel to Pakistan on January 29, 2024, according to the statement, on the invitation of the foreign minister of Pakistan.

The senior diplomats from Pakistan and Iran also concurred that their respective nations’ ambassadors will resume their posts by January 26.

Iran considers Pakistan's security as its own, says Abdollahian

In a phone call with his Pakistani counterpart on Wednesday, Iran’s Foreign Minister Hossein Amir Abdollahian emphasized that Tehran attaches great significance to the security of its neighbor countries including Pakistan.

The top Iranian diplomat told Jalil Abbas Jilani that the sovereignty and territorial integrity of Pakistan is extremely important to Iran. He, however, noted that Iran cannot sit idly by and let vicious terrorists spill the blood of its innocent civilians. 

“The group we targeted has claimed responsibility for several terrorist attacks on Iranian soil. No Pakistani civilians were targeted in this operation,” Amir Abdollahian stated. 

The Iranian foreign minister also hoped for the continuation of dialogue between the two countries, saying the exchange of views should continue based on mutual interest and must lead to stronger security cooperation. 

The Pakistani foreign minister, for his part, underscored the historic ties between Iran and Pakistan, while pointing out the two nations’ long-lasting endeavors in combating terrorism.   

He also listed the numerous areas of cooperation between the two countries and requested the Iranian side to provide information related to terrorist groups on Pakistani soil for cooperation between the two countries.

Jilani emphasized that Islamabad expects the confrontation with terrorist groups in Pakistan to be carried out by Pakistani forces.

In December, a terrorist attack on a southeastern police station in Iran left 11 guards killed and 6 others injured. The Pakistan-based Jaish al-Adl terrorist group took responsibility for the attack.

The headquarters of the Jaish al-Adl were pounded by a barrage of Iranian missiles on Tuesday, which destroyed the group’s terror infrastructure.

Iran says it officially asked Pakistan numerous times to rein in the terrorists in the past years, but Islamabad has not done enough to combat the group. 

 

Iran and Pakistan conduct joint naval exercise in Persian Gulf

According to Tehran Times, Iran and Pakistani military forces engaged in a day-long joint naval training exercise in the Strait of Hormuz and the northern Persian Gulf, demonstrating their commitment to enhancing cooperation and strengthening relations.

The drills, which took place off the coast of Bandar Abbas, involved combat vessels and missile-launching warships from both the Islamic Republic of Iran Navy and the Pakistan Navy.

The main objectives of the naval exercises were to elevate the level of training interactions, promote military relations, and implement bilateral maritime agreements. Young officers and cadets from both Iranian and Pakistani navies participated, employing a range of naval tactics and practicing communication and interaction using various telecommunication systems. Emphasis was placed on the transmission and reception of messages during sea emergencies.

Iran and Pakistan have increasingly intensified their military cooperation, conducting several joint naval exercises. In June of the previous year, senior military commanders from both nations discussed plans for collaboration between their navies and air forces.

During the meetings in Islamabad, Iranian Navy Commander Rear Admiral Shahram Irani engaged with Chief of Naval Staff of Pakistan Muhammad Amjad Khan Niazi and Chief of Air Staff of the Pakistan Air Force Zaheer Ahmad Babar. The Iranian delegation received briefings on the Pakistani Navy's efforts in ensuring maritime security and discussed plans for bilateral and multilateral cooperation.

The commanders explored ways to enhance cooperation between the navies of Iran and Pakistan, including initiatives such as training courses and the exchange of delegations. This ongoing collaboration underscores the commitment to mutual strategic interests in the region.

Earlier this month, Iran announced that the Islamic Republic plans to form new regional and extra-regional alliances to enhance security.

He also named Pakistan among other countries, including Saudi Arabia, the United Arab Emirates, Qatar, Bahrain, and Iraq that are eager for collective naval cooperation.

 

Pakistan to recall its ambassador from Iran

The Foreign Office (FO) on Wednesday said Pakistan has decided to recall its ambassador from Iran and suspend all high-level visits ongoing or planned between the two countries following the unprovoked violation of its airspace by Tehran.

Iran claimed having targeted an Iranian terrorist group and none of the nationals of the friendly and brotherly country of Pakistan were targeted by Iranian missiles and drones.

The development came after the FO, in a statement released late on Tuesday night, denounced the strikes in Pakistani territory that resulted in deaths of two innocent children while injuring of three girls. It termed the incident a violation of Pakistan’s sovereignty.

In a press briefing in Islamabad on Wednesday, FO spokesperson Mumtaz Zahra Baloch said last night’s unprovoked and blatant breach of Pakistan’s sovereignty by Iran was a violation of international law and the purposes and principles of the Charter of the United Nations.

“This illegal act is completely unacceptable and has no justification whatsoever,” she asserted.

 “We have also informed them that Pakistan has decided to recall its ambassador from Iran and that the Iranian ambassador to Pakistan, who is currently visiting Iran, may not return for the time being,” she said.

 “On Pakistan, none of the nationals of the friendly and brotherly country of Pakistan were targeted by Iranian missiles and drones,” Foreign Minister Hossein Amir-Abdollahian said on the sidelines of the World Economic Forum in Davos, Switzerland.

Amir-Abdollahian said Iran’s attack on “Pakistan’s soil” was a response to the Jaish Al Adl group’s recent deadly attacks, particularly on the city of Rask in the southeastern province of Sistan-Baluchistan.

“The group has taken shelter in some parts of Pakistan’s Balochistan province,” he claimed, adding that “we’ve talked with Pakistani officials several times on this matter”.

The foreign minister said Iran respected the sovereignty and territorial integrity of Pakistan but would not “allow the country’s national security to be compromised or played with”.

Earlier, Iran’s Deputy President for Parliamentary Affairs Mohammad Hosseini claimed Pakistan had been warned that they must prevent the entry into Iran of people who kill large numbers of people; it was natural to have the reaction of the Islamic republic.

China urges Iran and Pakistan to exercise restraint following air strike

According to AFP, China on Wednesday has urged Pakistan and Iran to show restraint, after Islamabad denounced what it described as the unprovoked violation of its airspace by Iran.

According to a statement released by the Foreign Office (FO) after midnight, strikes in Pakistani territory resulted in deaths of two innocent children while injuring of three girls.

While the Pakistan FO did not mention the location of the incident, Iranian state media said the attack took place in the border town of Panjgur in Balochistan.

Iran’s semi-official Tasnim news agency said the focal point of this operation was the region known as Kouh-Sabz (green mountain) in Balochistan.

“Two key strongholds of the Jaysh al-Dhulm (Jaish al-Adl) terrorist group in Pakistan were specifically targeted and successfully demolished by a combination of missile and drone attacks”, the Tasnim news agency said.

Reports from the area suggested that a missile hit a mosque, partially damaging it and injuring some people.

According to AFP, hours before the attack, Caretaker Prime Minister Anwaarul Haq Kakar had met Iranian Foreign Minister Hossein Amir-Abdollahian on the sidelines of the World Economic Forum in Davos, Switzerland.

Iran offered no immediate official comment but its state-run Nour News agency said the attack destroyed the Pakistan headquarters of the Jaish al-Adl.

Speaking at a regular briefing today, China Foreign Ministry Spokesperson Mao Ning said, “We call on both sides to exercise restraint, avoid actions that would lead to an escalation of tension and work together to maintain peace and stability.”

“We consider both Iran and Pakistan as close neighbours and major Islamic countries,” she added.

It must be noted that both Iran and Pakistan are close partners of Beijing and members of the Shanghai Cooperation Organisation — a political and security union of countries spanning much of Eurasia, including China, India and Russia.

‘Unacceptable and condemnable’

In a post on social media platform X, caretaker Balochistan Information Minister Jan Achakzai expressed disappointment and said terrorism was a common threat to all countries in the region that required coordinated action.

“Such acts of air space violations by Iran undermine neighbourly relation, trust and renewed trade linkages established with Balochistan,” he added.

Pakistan has acted with restraint whenever there’s been turbulence on the Pak-Iran border by terrorist groups, and always sought collective responses to the transnational challenge of terrorism.

Last month, at least 11 Iranian police officers were killed in an attack overnight on a police station in the southeastern province of Sistan-Baluchestan. Iranian Interior Minister Ahmad Vahidi, while visiting the site, had urged Pakistan to prevent terrorist groups from establishing bases within its borders, the official news agency of Iran reported at the time. He had also noted that initial investigations suggested the assailants had entered Iran from Pakistan.

 

IMF Executive Board Completes First Review of Stand-By Arrangement for Pakistan

The Executive Board of the International Monetary Fund (IMF) has completed the first review of Pakistan’s economic reform program supported by the IMF’s Stand-By Arrangement (SBA). The Board’s decision allows for an immediate disbursement of SDR 528 million (around US$700 million), bringing total disbursements under the arrangement to SDR 1.422 billion (about US$1.9 billion).

Pakistan’s 9-month SBA was approved by the Executive Board on July 12, 2023, for the amount of SDR 2.250 billion (about US$3 billion at the time of approval), aims to provide a policy anchor for addressing domestic and external balances and a framework for financial support from multilateral and bilateral partners.

The program is focused on: 1) implementation of the FY24 budget to facilitate Pakistan’s needed fiscal adjustment and ensure debt sustainability, while protecting critical social spending; 2) a return to a market-determined exchange rate and proper FX market functioning to absorb external shocks and eliminate FX shortages; 3) an appropriately tight monetary policy aimed at disinflation; and 4) further progress on structural reforms, particularly with regard to energy sector viability, SOE governance, and climate resilience.

Macroeconomic conditions have generally improved, with growth of 2% expected in FY24 as the nascent recovery expands in the second half of the year.

The fiscal position also strengthened in Q1FY24 achieving a primary surplus of 0.4% of GDP driven by overall strong revenues. Inflation remained elevated, although with appropriately tight policy, anticipated to decline to 18.5% by end-June 2024. Gross reserves increased to US$8.2 billion in December, up from US$4.5 billion in June 2023. The exchange rate remained broadly stable.

The current account deficit is expected to rise to around 1.5% of GDP in FY24 as the recovery takes hold. Assuming sustained sound macroeconomic policy and structural reform implementation, inflation should return to the SBP target and growth continue to strengthen over the medium term.

Following the Executive Board discussion, Antoinette Sayeh, Deputy Managing Director and Chair, made the following statement:

“Pakistan’s program performance under the Stand-By Arrangement has supported significant progress in stabilizing the economy following significant shocks in 2022-23. There are now tentative signs of activity picking-up and external pressures easing. Continued strong ownership remains critical to ensure the current momentum continues and stabilization of Pakistan’s economy becomes entrenched.

“The authorities’ strong revenue performance in Q1FY24 as well as federal spending restraint have helped to achieve a primary surplus in line with quarterly program targets. However, in the context of pressures, including from provincial spending, efforts at mobilizing revenues and ongoing non-priority spending discipline need to continue to ensure that the budgeted primary surplus and debt goals remain achievable. Going forward, broad-based reforms to improve the fiscal framework—mobilizing additional revenues particularly from non-filers and under-taxed sectors and improving public financial management—are required to create fiscal space for further social and development spending.

“The authorities took challenging steps to bring both electricity and natural gas prices closer to costs in 2023. Continuing with regularly-scheduled adjustments and pushing cost-side power sector reforms are vital to improving the sector’s viability and protecting fiscal sustainability.

“Inflation remaied high, affecting particularly the more vulnerable, and it was appropriate that the SBP maintains a tight stance to ensure that inflation returns to more moderate levels. Pakistan also needs a market-determined exchange rate to buffer external shocks, continue rebuilding foreign reserves, and support competitiveness and growth. In parallel, further action to address undercapitalized financial institutions and, more broadly, vigilance over the financial sector is necessary to support financial stability.

“Boosting jobs and inclusive growth in Pakistan requires continuing protection of the vulnerable through BISP and accelerating structural reforms, most notably around improving the business environment and leveling the playing field for investors, advancing the SOE reform agenda and safeguards related to the Sovereign Wealth Fund; strengthening governance and anti-corruption institutions; and building climate resilience.”

 

Iran serves notice on Pakistan for delay in gas pipeline project

Reportedly, Iran has served a third notice to Islamabad, renewing its intention to move the arbitration court for not laying the pipeline as part of the Iran-Pakistan gas line project. The project has been facing delays since 2014.

It is believed that the Interstate Gas System (ISGS) has funds to lay down the 81-kilometer pipeline to partially become part of the project. Now it is time Pakistan should come out of US hegemony and complete this gas pipeline at the earliest.

Iran had asked Pakistan in its second notice to construct a portion of the Iran-Pakistan gas pipeline project in its territory by March 2024 or be ready to pay a penalty of US$18 billion.

Tehran had sent a notice to Islamabad in February 2019 to move an arbitration court for not laying down the pipeline in Pakistan’s territory in the stipulated period under the IP gas line project. It threatened to invoke the penalty clause of Gas Sales Purchase Agreement (GSPA). The GSPA was signed in 2009 for 25 years but the project could not take shape.

Pakistan has been arguing that it could not materialise the project in its territory because of the US sanctions imposed on Iran, a view which authorities in Tehran have never subscribed, saying the US sanctions are not justified. Iraq and Turkey have been using gas from Iran for long as they have managed waivers on the US sanctions.

It is on record that India got a waiver for importing petroleum products from. Pakistan has, meanwhile, tried to contact the US authorities many times to know whether the US curbs on Iran would have any impact on Pakistan if it becomes a part of the IP gas line but the country has not received any response from Washington.

The GSPA (Gas Sales Purchase Agreement) was signed under the French law and the Paris-based Arbitration Court is the forum to decide disputes that arise between the two countries. The French arbitration court does not recognize the US sanctions.

It is believed that the top authorities in Pakistan have carved out a strategy under which it has been decided to partially implement the IP gas line project by laying down an 81-kilometer pipeline from Gwadar to the Iranian border, a point where Iran has already laid down its part of the pipeline from the gas field. This will help Pakistan avoid the expected penalty of US$18 billion if Iran moves the Arbitration Court.”

As per the plan, the 81-kilometer pipeline will connect Gwadar with the IP gas line project and the gas will be used in Gwadar initially. If the US does not invoke any kind of sanctions, then the pipeline will be extended from Gwadar to Nawabshah. If Washington imposes sanctions, then Pakistan will have valid reasons to abandon the project and this is how it would escape the US$18 billion penalty and arbitration court proceedings. To this effect, top-level leadership of both the countries is in constant touch at the ministerial level on a strategy to implement the project and the prime minister will be briefed by the authorities very soon and a go-ahead for the strategy will be sought.

The Special Investment Facilitation Council (SIFC) has also been sensitized over the latest notice from Iran and the strategy carved out by the authorities concerned.

According to top sources in SIFC, Pakistan has to show seriousness by March 2024 towards the Iran-Pakistan gas pipeline by laying down the 80-kilometer pipeline from Gwadar to the Iranian border or it would face the US$18 billion penalty.

Pakistan facing election delay

Calls from multiple players to delay Pakistan's upcoming general election threaten what is left of the country's fragile democracy, experts say, though many expect the polls will go ahead in the end.

The clearest push for a postponement so far came last Friday, when the Senate passed a resolution urging the government to put off the February 08 vote due to security concerns. Molana Fazal ur Rehman, Pakistan's leading Islamist politician, also endorsed the resolution.

Fears of violence are not unfounded. On Monday, six policemen were killed by the Pakistani Taliban in Khyber Pakhtunkhwa province during an anti-polio campaign, just the latest attack on security personnel. Last Friday, a religious cleric belonging to a Sunni sectarian group was gunned down in Islamabad, sparking protests.

But while deteriorating security provides a pretext for pushing back the election, many politicians, civil society activists and political commentators told Nikkei Asia that further delaying the already late vote would damage the democratic system.

"A prolonged caretaker setup that is beholden to the [military] establishment but not accountable to the people of Pakistan has eroded civilian say in governance," said Amber Rahim Shamsi, a political commentator based in Karachi.

After former Prime Minister Imran Khan was ousted in April 2022, a coalition government led by the Pakistan Muslim League-Nawaz (PML-N) party took over. Last August, it dissolved for a caretaker government to oversee elections, which were originally supposed to be held in late 2023.

Cyril Almeida, a politics expert in Islamabad, believes that Pakistan is now operating outside constitutional parameters. He said a fixation has developed on simply preventing Khan - a former cricket star turned Islamist populist now jailed over corruption allegations he denies - from making a comeback.

"Military and the civilians not aligned with Imran Khan have a single-point agenda: Keep Imran Khan out of power," he said. "So whatever it takes to achieve that, the military and its civilian allies are willing to contemplate."

Khan's Pakistan Tehreek-e-Insaf (PTI) party, which complains of an uneven playing field, is down but not necessarily out. Election nomination papers for Khan and an overwhelming majority of PTI leaders were initially rejected. Later, appellate tribunals overturned most of the decisions, albeit not for Khan.

On Wednesday, the High Court in Peshawar ruled that the PTI can contest elections under its trademark symbol, a cricket bat. Earlier, the Election Commission had deprived the PTI of its symbol on a technicality.

Meanwhile, once-exiled former Prime Minister Nawaz Sharif this week had his ban from politics lifted, clearing him to run. Sharif and his PML-N party are now widely considered the preference of the military establishment.

The Human Rights Commission of Pakistan has expressed concern about the electoral process. "At this point, there is little evidence to show that the upcoming elections will be free, fair, or credible," it said in a January 01 statement on X, formerly Twitter.

Shahid Maitla, another political analyst in Islamabad, believes the establishment and caretaker government have failed to check the popularity of Khan, who still has vast appeal among the masses. "The curtailment of Khan's party is being achieved through the management of courts, police and media," he said.

He said that some in the "business community, caretakers and unpopular political players like JUI-F are the ones having vested interests are exerting pressure on the establishment to postpone [the] polls," referring to Jamiat Ulema-e-Islam-Fazal, the largest Islamist party, led by Rehman.

Maitla even suggested that some members of the caretaker government are lobbying prominent journalists to influence the establishment and judiciary to delay the elections so that they can continue to rule.

Yet, the growing unpopularity of the interim administration is making that case more difficult, experts say.

In recent days, caretaker Prime Minister Anwaar ul-Haq Kakar and Information Minister Murtaza Solangi have faced severe criticism for comments they made at different forums. Kakar suggested women from Balochistan province protesting forced disappearances were "advocates of terrorists" and asked those who are supporting them to "go and join them."

Maitla said that the caretaker government has also failed to effectively communicate Pakistan's position on the repatriation of Afghan migrants and the Israel-Hamas war. "Kakar proved a poor choice" for prime minister, he argued, saying Kakar is keen to interact with the media but "earned embarrassment."

"The establishment is not happy with the caretakers at all," Maitla said. "If elections had not been nearing, many of them would have been replaced."

Almeida in Islamabad said the interim government has overstepped.

"All caretaker governments lack political legitimacy, but this particular group has tried to leverage the support it has of the military into space for weighing in on policy matters and national controversies," he said.

That leaves elections as the best bet to form a more legitimate government, despite the efforts to delay them.

A well-placed source within the security establishment denied rumors that Kakar could be replaced. "'[Kakar] will complete his tenure and elections will be held on time," the source told Nikkei on condition of anonymity.

"With Nawaz Sharif back in the country and now cleared to take part in elections, it is unlikely elections will be postponed at this late stage," Almeida argued.

Maitla agreed. The "election is a compulsion rather than a choice for the country and more so for the establishment, as it is losing its capital fast from the domestic to the international front."

Courtesy: Nikkei Asia