Pakistan : at a Crucial Economic Stage

After a general election in Pakistan, Imran Khan is set to take charge as a Prime Minister. This is a historic political transition in Pakistan. At the same time, Pakistan is at the edge on the economic front and bailout package is under consideration in IMF. But, the US is opposing this kind of aid. This is all about a competition between the US and China to maintain influence over Pakistani Economy. For India, not only political happenings in Pakistan are important, but its economic situation should have the same importance.

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In Pakistan’s general election, Imran Khan’s Pakistan Tehrik-e-Insaf (PTI) emerged as a single largest party and it is just a few numbers away from the magic figure. So, Imran Khan would be the next PM of Pakistan and oath ceremony is the only formality remains. So, there is a lot of discussion about Imran Khan, his views about India, his relation with the army and how the army helped him etc. It is quite obvious. But, one more thing about Pakistan, which we should consider is that Pakistan’s economy. Pakistan’s economy is under tremendous pressure. Its foreign exchange reserve is declining rapidly and aid from IMF is inevitable. But, if IMF helps Pakistan, then all that aid would go to China, as a repayment its loan. So, the US is opposing IMF aid. This is a zero-sum game, between China and the US. China’s influence is growing and the US is trying to check it. If this economic crisis goes deeper, the Chinese hold over Pakistan will become stronger and this growing nexus between China-Pakistan will not be in favour of India’s interest.

If we consider South Asia, Pakistan’s economy is the second number after India. Although there is a large gap between India and Pakistani economy and size of economies of other south Asian countries are too little; Pakistan’s economic condition has the same importance for stability and prosperity of South Asia. Now, Pakistan’s economy is in crisis and this crisis is deepening day by day. Many indicators, too, have underlined this worrisome situation. Since December, State bank of Pakistan has devalued Pakistani Rupee four times. Now, the exchange rate between the US dollar and Pakistan’s Rupee crossed 120. At a time, it had reached 128 Pakistani Rupee for a USD. State bank has increased interest rate three times, since December. A few days back, tax on 700 items have increased. Trade war, increase in oil rate, shrinking foreign exchange reserve and pressure of repayment are the reasons behind this crisis. Devaluation of Rupee may not be helpful to stop economic crisis, but it is a state bank’s attempt to control the foreign currency. One more important thing, last year Pakistan’s economy grew with a rate of 5.3 per cent and it was the highest rate in last 13 years, just because of imports for Chinese power and road projects. So in one hand, Pakistan’s growth rate is making the record and on the other hand, the economy is in crisis. This is a contrary picture.

At the stage of power change, IMF is considering to give aid of 12 billion USD for Pakistan. IMF officials might be waiting for the formation of new government. But, US Secretary of State Mike Pompeo warned IMF for this consideration. He said, ‘There’s no rationale for IMF tax dollars and associated that of American Dollars that are part of the IMF Funding, for those to go to bail out Chinese bondholders or China itself.’ He asked to reconsider this bailout thought. Pompeo’s this warning underlines Chinese investment and larger economic interests in Pakistan. Work of China-Pakistan Economic Corridor (CPEC) is in progress and China has been investing continuously for this 62 billion USD dream project. In the first 2 years of CPEC, till June 2017, Pakistan imported machinery of an amount of 15.5 billion USD from China. So far these both countries have not announced details about CPEC agreement and it is enough to create a space for doubt about this project. During July to December 2017, import from China to Pakistan was 6.6 billion USD, which is ten times than Pakistan’s export to China. This is a clear picture of the trade imbalance between China and Pakistan. Also, in 2017-18 China has given a loan of 5 billion USD to Pakistan. Although the US has opposed aid to Pakistan, IMF officials rejected this pressure and IMF don’t have VETO. In IMF, the US has more than 16 per cent shares and China has more than 6 per cent. In  IMF, the US is at number one and China at number 2. So we can consider Pakistan aid situation as a zero-sum game the US-China on IMF front. So, it is clear that the new government of Pakistan would be under pressure from these two countries. 

IMF aid to Pakistan is not a new thing for Pakistan. Since 1988, IMF has given 12 economic packages to Pakistan. Each time IMF extends help with expectations of some reforms. Last time, it has given aid, but conditions remain unfulfilled. So, this new government has to assure the fulfilment of such conditions. That conditions includes, reduce fiscal deficit, privatization of public projects. It may include some austerity measures.  But, such conditions are always against popularity. So, for any new government, it is difficult to follow. In a list of World Bank for business-friendly countries, Pakistan is at 147 among 190 countries. Moody's just gave negative ranking to Pakistan. So, Pakistan’s is in a very difficult situation on the economic front and it is difficult to raise money. Even, Pakistan didn’t join Saudi led military alliance in the Yemen War. So, along with the US, the door of Saudi Arabia is also closed for Pakistan and now, China is the one and only option. This situation is favouring to China to make hold on Pakistan stronger.

While the result of Pakistan’s election was underway, ASSOCHAM comes with a programme for India-Pakistan relation under this new government. It identified five sectors, in which India could help Pakistan. Such as export of refined petroleum products, Computer machinery, electric machinery, Iron ores and Steel, Automobile products etc. will be helpful for Pakistan’s economy. ASSOCHAM also underlined, if government to government agreement happens, then it will nullify the question of foreign exchange reserve. We have a lot of experience about Pakistan, we know the new government is almost a pupil government and power aspiration of Pakistan’s Army is never been a hidden thing; so we have to consider these all things while thinking about Pakistan. Still, we could not keep out ASSOCHAM’s ideal thought. Indian economy has increased 20 times since the 1990’s. India’s GDP is 80 per cent of total GDP of South Asian Countries and Pakistan’s GDP is 10 per cent. (Bangladesh 6 per cent, Sri Lanka 2 per cent and remaining 2 per cent ) But, these neighbouring countries got limited benefit of India’s large economy. Even if we could not Pakistan as the initial stage, other neighbouring countries should get the benefit of our economy, then and then only we could expand our influence. To control a country like Pakistan, we should have a strong military policy, we should have nuclear arsenals and its deterrence, and we have to do surgical strikes, whenever it needed. But, at the same time, we should involve them in economic activity too. If such economic relations results with fruits of prosperity, then their young generation may create internal pressure. History has a number of pieces of evidence, if the internal pressure of aspiration increases, any kind of pressure or any kind of Military rules, it succumbs. So, Pakistan is at a crucial stage, at political and at an economical level too. So, we have a close watch on each thing of this country.

Original article published in Maharashtra Times, on 5 August 2018. You can see it here

https://maharashtratimes.indiatimes.com/editorial/ravivar-mata/pakistan-in-financial-difficulties/articleshow/65275704.cms