Pakistan: Wolf at the door
PTIs victory should trigger a domino effect, for fresh elections for which Pakistan and its economy is unready. Imran Khan has already called for immediate elections. The PML-PPP coalition is undeterred and intends to continue. In fact, the PML has formed a committee to determine treasonable offences by the PTI government.
By Lt Gen P R Shankar (R)
PTI’s sweep in the recent Punjab by-polls prompted the media to hail Imran Khanas a genuinely popular leader in Pakistan with grassroot support who has ‘arrived’. PTIs victory should trigger a domino effect, for fresh elections for which Pakistan and its economy is unready. Imran Khan has already called for immediate elections. The PML-PPP coalition is undeterred and intends to continue. In fact, the PML has formed a committee to determine treasonable offences by the PTI government. As the elections results were seeping out, the Pakistani rupee tumbled to 215.2 rupees to an USD. The next day it hit a new low at 222 rupees. The Karachi stock exchange plummeted more than 700 points on day one and another 900 points on day two. Simultaneously Fitch downgraded Pakistan’s outlook from ‘stable’ to ‘negative’. Pakistan is amongst a dozen countries in the ‘danger zone’ of default and economic collapse. There is a wolf at Pakistan’s door.
The article in National Interest about Pakistan’s Coming Collapse Should Worry the World factored many issues. However it only scratched the surface. The developments of the past week take Pakistan with its eternal fault lines to a point where the terms ‘failed state’, ‘collapse’ and ‘anarchy’ have been used in media widely
Imran Khan’s three and a half years in power as part of a hybrid experiment was marked by poor governance, rising cost of living and surging unemployment. It ended with tensions with the military leadership over the appointment of the ISI chief. PTI’s allies and its supporters deserted the ship. The IMF bailout ($6bn Extended Fund Facility (EFF)) was halted when Imran Khan announced populist measures like tax amnesty scheme and energy price cuts inreversal of agreed reforms. Imran Khan was then ousted from power by an opportunistic combination of political parties and the military establishment. Thereafter, Imran Khan shrewdly propagated a victim’s narrative of an international conspiracy. His politics revolved around an ‘independence struggle’ against an ‘imported government’ and ‘neutrals’. He has accused the ECP of being partial, has alleged the armed forces and intelligence agencies of conspiring to rig the elections and, blamed the supreme court judges for politicking. He has indirectly encouraged party supporters to take the law into their own hands if needed. He has completely diverted Pakistan’s attentionfrom his party’s monumental failings when in power. Such is the man now arriving for Pakistan! If the wolf is let in it will eat up Pakistan. If it is kept at the door it will keep baying and not let Pakistan sleep.
The current PML government took over power with the tacit aid of the military when the economy was plummeting. It had repeatedly targeted inflation to unseat Imran Khan. On assuming power it prevaricated whether to go along with the IMF or not. The economy started melting and inflation zoomed to the current 15-25% zone. The global inflationary trend due to the Russia – Ukraine war added fuel to the fire. Further, fuel and electricity prices rose due to withdrawal of subsidies to revive the IMF bailout. As the halted IMF program is recommencing,these by-election results have come out. The Hobson’s choices for the PML Government are clear. Press ahead with the IMF program. This includes high taxes and no subsidies in fuel and electricity. People might not be able to cope with the resulting inflation. In this high risk option, peoples mandate can be lost whenever the elections are held unless the military backs it completely. Otherwise, revert to populist measures and run the risk of another halt in the IMF bailout to teeter towards bankruptcy. There is also a reality that the government might have to go in for snap elections. The government has assumed a lame duck character irrespective of how long it remains in power. The wolf wants a duck meal!
The emerging scenario indicates high likelihood of political turmoil and uncertainty which can derail the IMF program again.If the IMF injection reduces, forex reserves will dwindle. More than that, the political instability which this election hasengendered lights up international neon signs. No one will come forward to extend a helping hand to an ‘unstable government’ facing a financial crunch. Pakistan is bound to go in for elections sooner or later. Political instability will prevail till then. The economy will continue to deteriorate. When Imran Khan returns to power, as it appears he will, reversion to populist measures and poor governance is almost certain. Afterall, Imran Khanhas to live up to the lofty promises he is making on a daily basis. Derailing the IMF program is almost a given if it does not happen before. Look at it anyway; the political direction of Pakistan’s economy is downward and bleak. The wolf is baying at the door.
In the past, the Army would step in unambiguously to stem the tide. However, a divided military is part of the problem and no more the solution. If the military steps in, all international financial institutions will back out. Moreover, the military leadership itself is up for grabs and factions in the military are visible. For the first time in the history of Pakistan, a politician is taking on the military squarely and calling it disparagingly ‘neutral’. In earlier times, the military would simply take over and hang the person or get him assassinated. The world would also start dealing with the dictator due to Pakistan’s strategic importance. Today’s Pakistan has very little geostrategic capital left which the Army can peddle. The military wolf has lost its teeth.
At the other end, the Taliban ruled Afghanistan has become an economic and ideological millstone around Pakistan’s neck. Pakistan buys items in dollars which are smuggled across to Afghanistan in rupees. That is forex haemorrhage in perpetuity. The Afghan Taliban is tacitly supportive of the TTP. The daily causalities being heaped on the Security forces by the TTP shows the Army in poorer light. Further, instead of carrying out military operations to weaken the group, the weakened Army and government have started peace talks with the TTP. The pointsman for the talks is none other than Gen Faiz, the ex-ISI spymaster who has close links with Taliban. Acceptance of any demand of the uncompromising TTP amounts to ceding sovereignty of Pakistan. The talks with the TTP, which have been described as a ‘case for the soul of Pakistan’,are failing. If there is any part of Pakistan which has the motive and capability to secede it is the Pashtun areas along the Durand Line where TTP influence is dominant. A weak Pakistan is in the danger of breakup on this line. There is a new wolf on the horizon.
Coming to pure economics. World Bank has warned Pakistan of macroeconomic instability. The report also stated that Pakistan’s real GDP per capita growth has been only around 2%. Domestic and foreign investment levels are dismally low. Productivity has stagnated. Agriculture, which is 20 % of Pakistan’s GDP, is contracting. From a food surplus nation Pakistan has become a net food importer. It imports wheat, sugar, 70% of its pulses and 86%of its edible oil. Its domestic wheat yield has dropped due to shrinking acreage, poor application of fertiliser, water scarcity, and limited certified seeds and so on. As per estimates the country will import millions of tonnes of grain in perpetuity. That, Pakistan usually imports wheat from Russia and Ukraine tells its own story. The country is already water scarce. A combination of population growth, inadequate storage capacity, poor water management and, polluted ground water will drive Pakistan into absolute water scarcity very shortly. At that time, Pakistan will become a fully food insecure state. As it stands 90 million people are already going hungry. 40% of Pakistan’s population is food-insecure.
Pakistan’s population of 220 million growing uncontrolled at 2.4% cannot be sustained by the land. It can also not harness its youth bulge of 63% with the current quality of ideologically driven education, lack of industry, shrivelling agriculture, collapsing economy and poor governance. As per the National Interest article, the price spike in oil prices has hit Pakistan hard, driving up the cost of its imports by more than 85 percent. Its trade deficit as on 30 Jun 2022 is nearly $50 billion, a 57% increase in one year. Inflation in Jun was topping 20%. Its forex reserves hover between 6-9 bn USD. If the IMF program gets derailed, this situation will worsen faster. The CPEC instead of being an asset is an economic liability. It was supposed to solve Pakistan’s chronic electricity problem. However urban areas experience six to ten hours and, rural areas witness eight to sixteen hours of loadshedding. Sovereign counter guarantees to Chinese independent power producers who form the bulk of CPEC are a drain on Pakistani government’s revenue. A camouflaged wolf is already inside and eating up Pakistan.
Two constants which have not changed inPakistan-the ever increasing defence expenditure and skimming the top by the elites. The defence expenditure has a hefty sum of ballooning import content disproportionate to its needs. In addition, the salaries and perks of armed forces increase irrespective of the state of the economy. Historically, Pakistan has not been able to afford any of its wars. That did not matter since they were paid by others. As a result it is addicted to be in a continual state of conflict. Hereafter it has to self-finance its conflicts from within its meagre resources. Elite capture is done by bureaucrats and the feudal creamy layers who apportion themselves perks and privileges far in excess of any other comparable country. These two classes live in a different world as compared to the rest of Pakistan and are unaffected by any happening in the Pakistani economy. The Pakistani elite and military live in a state of belief in which their privileged and affluent life is preordained and that the broader society has to permanently bear the burden of their profligacy. These rabid wolves will eat Pakistan in whatever form it is.
For a long time Pakistan was a progressive and prosperous state protected by a strong professional military. When one puts together all the enumerated facts into an analytical frame work, it emerges that current day Pakistan is a product of its fundamental fault lines of identity and ideology. It is a land of depleting resources which cannot support a burgeoning population devoid of skill sets, education or productivity to sustain its initial promise. It has transformed into a one dimensional state with a polarised political landscape whose sole idea is to capture power rather than improve lives of people. Resultantly, the country has been sliding into a state of economic decay with a predatory military leeching on the dwindling resources. In the absence of impetus of external aid, this downward spiral is accelerating under a mountain of debt.
Whether Imran khan comes into power or Shabazz Sharif continues…whether elections are held today, tomorrow or day after or later…whether a strong military manipulates the system or a weak military is kept on a leash…whether China supports or forecloses on its debt…it does not matter. Pakistan has crossed more redlines than what Marc Rubin has outlined in his article Pakistan’s Coming Collapse Should Worry the World. Pakistan is clearly descending into a state which can charitably described as failed, dysfunctional or collapsing. This highly indebted nation which faces societal instability is slowly and steadily slipping into irretrievable anarchy.The wolf is at Pakistan’s door. The wolf has already entered into Sri Lanka. How far is the wolf away from India? Of course, it is a different matter that the wolf waiting outside India’s door is a different animal with a different hunger.
PS :- The KSE has plunged another 591 points overnight and it takes 227 PKR to buy a dollar now...and ...if you are a Pakistani...you own the fourth worst passport in the world...cry wolf...happy days are here again...!
(The author is PVSM, AVSM, VSM, and a retired Director General of Artillery.He is currently a Professor in the Aerospace Department of IIT Madras. Hewrites extensively on defence and strategic affairs @ www.gunnersshot.com. Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited).
Refs :-
https://www.gunnersshot.com/2022/07/pakistan-and-its-fault-lines-by-lt-gen.html
https://www.dawn.com/news/1687371
https://www.dawn.com/news/1630745
https://www.dawn.com/news/1700342/kse-100-plummets-by-more-than-700-points
https://www.dawn.com/news/1699817/the-big-default-pakistan-among-a-dozen-countries-in-danger-zone
https://nationalinterest.org/feature/pakistan’s-coming-collapse-should-worry-world-203545
No one saw this coming in 2019. It's amazing how fast things can change.
ReplyDeleteIndia too is losing foreign exchange reserves rapidly. The reserves stood at $642 billion last September. It is now down by over $60 billion at $580 billion because of the need to burn reserves to slow down Indian rupee depreciation. The reserves need to fall by 90% to $58 billion before the situation is as bad as in India. However, the Indian economy is so weak, I could see things becoming a serious economic crisis in 2025.
classic example of whataboutism...
DeleteWhataboutism tends to involve raising the issue of a different moral crime to distract from a different moral crime accusation. I can't see the whataboutism in such a purely macroeconomic discussion.
DeleteThe discussion is about Pakistan, especially its dire financial state. So this indeed is whataboutism, especially considering the weakness in the rupee is only when measured in USD, as can be seen from a chart of the INR vs the EUR or YEN.. The USD strength is a problem for all other currencies - other than the rouble :)
DeleteVery well elucidated Sir. As I was reading, a thought struck me - Nations in which the political leaders are dharmic / keep the interests of their people prime, by and large are happy. Nations in which the political leaders are greedy, over-ambitious, manipulative, controlled by lobbies - their people are bound to suffer. The sooner these politicians realize this, the better for the world
ReplyDelete