I
am delighted to share an article by Dr. Kamran Bokhari. While many Pakistanis,
particularly the establishment may not agree with many points, Pakistanis must
read and try to understand the narrative.
Dr. Bokhari is the Director of
Analytical Development at the New Lines Institute for Strategy & Policy in
Washington, DC. He is also a national security and foreign policy specialist at
the University of Ottawa’s Professional Development Institute. He has served as
the Coordinator for Central Asia Studies at the US Department of State’s
Foreign Service Institute.
Decades-old political economic problems in Pakistan are
coming to a head. The South Asian nation needs billions of dollars in financial
assistance to avoid a default at a time when its usual patrons are disinclined
to bail it out.
The International
Monetary Fund is insisting on tough reforms that the fragile coalition
government cannot institute without taking a major political hit in an election
year.
Even if Islamabad dodges this particular bullet, it will
have to massively overhaul the way it has managed the world’s fifth-most
populous country.
If it cannot, then it will further push Pakistan toward a
systemic breakdown, which has major consequences for security in the world’s
most densely populated region.
An IMF team is visiting Pakistan from January 31 to February
09 to continue discussions on the release of US$1.18 billion in assistance,
part of a $6 billion aid program that was agreed on in 2019 (and increased to US$7
billion in 2022) but that has since stalled.
Pakistan’s foreign exchange reserves have slumped to about US$3.68
billion, barely enough to cover three weeks of imports. Inflation was already
at 25% when the government announced on January 29 a 16% hike in gasoline and
diesel prices that will likely rise much further.
A few
days earlier, the Pakistani rupee fell 9.6% against the US dollar, the biggest
one-day drop in over two decades, after the government removed unofficial caps
and allowed the currency to move toward a market-based exchange rate.
Earlier in the month, the country’s civil and military
leadership traveled to Saudi Arabia and the United Arab Emirates to secure the
funds needed to avert a financial meltdown. Reports surfaced that Riyadh and
Abu Dhabi would provide several billion dollars. In sharp contrast with their
past behavior, they aren’t willing to write a blank check; the Saudi finance
minister said January 18 that the kingdom was no longer providing direct grants
and deposits to debtor nations without seeing reforms.
The Saudis,
the Emiratis and others who could provide the cash want to first see the
Pakistanis accept an IMF program. Besides, the beleaguered South Asian nation’s
financial needs far outstrip the global appetite to assist.
Islamabad, has been struggling to finalize what would be the
country’s 23rd IMF arrangement since it first knocked on the lender’s doors in
1958.
The
Pakistan Muslim League-Nawaz (PML-N) party, which heads the fragile and
increasingly unpopular coalition government, has a lot to lose by agreeing to
IMF terms that are bound to exacerbate harsh economic conditions. As it is, the
PML-N and its allies are facing an uphill electoral battle against the populist
opposition Pakistan Tehreek-i-Insaf (PTI) party of former Prime Minister Imran Khan.
Still, Pakistan’s political instability is the result of a
much deeper malaise. Since the end of Pakistan’s fourth military dictatorship
in 2008, the country nominally has experienced its longest stretch of civilian
governance. 2013 marked the first time one democratically elected government
transferred power to another. But the army continued to encumber both
governments, and in 2018 it engineered the rise to power of Khan’s PTI in hopes
that it would finally have a pliant civilian actor. That experiment was a
colossal failure. It has weakened the military politically and has thus
plunged the country into uncharted territory.
A similar situation has emerged on the economic front.
Pakistan has always had financial problems, which over the decades continued to
worsen. The country got by only because of a periodic influx of US assistance,
made possible by the broader global geopolitics of the time. There have been
three such long periods – 1958-69, 1977-88 and 1999-2008 – each under a
different military regime and coming at the height of the Cold War, the Soviet
military intervention in Afghanistan, and the post-9/11 war on terror,
respectively.
In
today’s changed circumstances, Pakistan is facing an unprecedented financial
crisis because it never developed a viable economy and is without external
bailout options.
Without a major reform process – which is unlikely given the
acute state of social and political divisions – Pakistan’s situation is likely
to worsen. Its annual population growth rate is 1.9%, which is 237 times that
of the global rate, and its fertility rate exceeds the global rate by 157%. At
this pace, in another 10 years the country will have added 50 million people,
increasing its population to 275 million. There is already a massive youth
population.
Sixty percent of Pakistanis are under the age of 23. As many
as 44% of all Pakistani children between the ages of 5 and 16 do not attend
school. Females make up almost half the population, and literacy among them is
at 48 percent.
Dealing with the multiplicity of crises plaguing the country
requires a political consensus. This is extremely difficult in the current
highly polarized political climate, which is unlikely to abate anytime soon.
Pakistan’s powerful military establishment, which has intervened in politics
for much of the country’s history, is in an unprecedented dilemma.
After the failure of its latest attempt to shape the
country’s political economy, which ended with the April 2022 ouster of Khan,
the top brass publicly committed to keeping the army out of politics.
Rationalizing the economy, however, will take a long time – assuming the
country’s tumultuous politics can be brought under control.
In moments like these, when normal politics produces only
more chaos, the pressure (or temptation) for the army to hit pause or reset on
the constitutional process is high. However, the general staff has been down
that road many times, only to end up exacerbating the problems it aimed to
solve. When problems are such that degradation is happening much more quickly
than is the realistic efforts to fix them, stalling the political process could
be akin to an out of the frying pan and into the fire type situation.
The
only other option is to continue the slow path toward recovery, which is
fraught with perils. As large swathes of the population suffer under the weight
of debilitating economic conditions, intra-elite political struggles intensify.
These are precisely the conditions that Islamist militants – both Taliban
rebels and Islamic State militants ensconced in the neighboring emirate in
Afghanistan – hope to exploit. A resurgent jihadist insurgency will likely
force an already weakened Pakistani state into a new major military campaign –
one that has serious potential to spill over across the border.
It is this nightmare scenario – a cash-strapped Pakistani
state whose security is compromised on its western flank – that will eventually
result in Arab Gulf states, China and the United States gaining greater
influence in the country. Washington cannot allow Pakistan to descend into
chaos, especially with Afghanistan under a Taliban regime. Likewise, China,
which has pumped tens of billions of dollars’ worth of Belt and Road funds into
the China-Pakistan Economic Corridor, is not going to sit by and watch its
investment sink.
Pakistan
is thus going to become an even bigger arena for the US-Chinese competition.
Meanwhile, the Saudis and the Emiratis, who have long played
a major role in periodically mediating intra-elite power struggles in Pakistan,
will likely have greater influence over Pakistan’s internal workings.
In
India, which only months ago surpassed the UK to become the world’s fifth
largest economy, there is immense concern over how a financially collapsing
Pakistan could affect New Delhi’s upward trajectory.
While it is too early to speak with any specificity on how
external powers will behave, Pakistan can’t continue to chug along as it has.
It may not always appear this way, especially in chronically fragile states,
but long-term dysfunction adds up. Major fissures have emerged that outstrip
Pakistan’s available resources, disrupting the status quo in which it was able
to get by for so long.
