Pakistan’s Economic Woes: Opposition Parties Cashing In?
Over the past year, the Pakistan rupee fell by well over 20 percent. (Photo: Reuters)
By Tridivesh Singh Maini

Pakistan’s Economic Woes: Opposition Parties Cashing In?

Jul. 03, 2019  |     |  0 comments


Pakistan’s Economic Survey released in June 2019 strongly underscored the point that the country’s economy is in doldrums. According to the Survey, growth is estimated at 3.3 percent (GDP to fall below 4 percent for the first time), down from well over 5 percent last year. Inflation is likely to surpass 9 percent.


Over the past year, the Pakistan rupee fell by well over 20 percent, making it the worst performing currency in Asia. Key economic sectors mostly witnessed declines. While the manufacturing sector slid by 0.3 percent, the service sector grew by 4.7 percent (while the target was 6.5 percent). The construction sector achieved growth of 7.6 percent (way below the target of 10 percent). FDI (July 2018-April 2019) dropped to USD 1.37 billion from USD 2.84 billion. China was the largest investor for this period (investing USD 429 million).


Prime Minister Imran Khan made a number of changes to his economic team, due to continued criticism about his team’s lackluster handling of the economy. His close confidant Asad Umar resigned as Finance Minister in April, after facing scathing criticism for negotiating a loan with the International Monetary Fund (IMF). Asad Umar was replaced by Abdul Hafeez Sheikh as Advisor of Finance. Sheikh had interestingly served during the regime of Pervez Musharraf as Minister of Privatization while later in the Pakistan People’s Party (PPP) government led by Yousuf Raza Gilani, he served as Finance Minister (2010-2013).


In May, Khan replaced the head of the State Bank of Pakistan (SBP) and the Federal Board of Revenue, Jahanzeb Khan. Dr Reza Baqir, who has been working with the IMF since 2000, was appointed as Governor of the SBP, while Ahmed Mujtaba Menon was appointed as the chairman of the Federal Board of Revenue.


Apart from reshuffling his team, Khan also set up the National Development Council (NDC) to get the economy back on track. This council included the Pakistan’s Chief of Army Staff (COAS) Qamar Javed Bajwa. The Pakistan army, according to certain sources, was not particularly happy with the Pakistan Tehreek-e-Insaf (PTI) government’s handling of the economy, and off late became more pro-active.


The decision to set up the NDC and include the COAS came in for criticism from the former chairman of the Senate Mian Raza Rabbani. He questioned the need for the setting up of an extra-constitutional body (the NDC), given that the National Economic Council (a constitutional body) could carry out such functions. Rabbani also made the point that the Finance Minister was already part of the National Security Council (NSC), and budgetary allocations for security could thus be discussed in the NSC.


One decision that put the government in a tight spot was the agreement signed with IMF in May for a loan of USD 6 billion over a period of 3 years. The terms and conditions of the loan were stringent. After the agreement was finalized, the Rupee slid and the stock market fell sharply. The IMF loan understandably evinced strong reactions from the opposition. Leaders from the main opposition parties PPP and Pakistan Muslim League-Nawaz (PML-N) criticized the PM for going ahead with the deal. A senior leader of the PPP and former Minister Sherry Rehman sought transparency with regard to the terms and conditions of the agreement. Raza Rabbani stated that IMF was the “New East India” company. Former Finance Minister Miftah Ismail also lashed out at Khan for signing a deal with the IMF. Ishaq Dar, who served as Finance Minister during Nawaz Sharif’s government, said that while negotiating with the IMF, he had made it amply clear that he would not be able to devalue Pakistan’s currency.



The Pakistan PM needs to think out of the box and needs to stop blaming past dispensations for the current economic mess.



After the budget was announced, opposition leaders such as the former Chief Minister of Punjab Shehbaz Sharif launched a scathing attack on the government, dubbing the budget as “anti-people” and being dictated by the IMF. Sharif also stated that the previous government had taken substantial steps to revive the country’s economy, while strengthening ties with China. PPP supremo Bilawal Bhutto dubbed the budget as a “PTIMF” budget and “economic suicide”. It would not be wrong to say that the abysmal state of the economy, the IMF loan along with detention of their leaders (former President Asif Ali Zardari and leader of opposition in Punjab Hamza Shehbaz) by Pakistan’s National Accountability Bureau had motivated the PML-N and PPP to find common ground. Former PM Nawaz Sharif was already in jail since December 2018. Bhutto and PML-N Vice President Maryam Nawaz Sharif met recently and discussed various issues, including the recently announced budget.

 

The latest problem for Pakistan is the US insistence that IMF assistance should not be used for repaying Chinese loans. US Assistant Secretary of State for South and Central Asian Affairs Alice G Wells, while speaking to a House Sub Committee, stated that there had been a discussion on what would be an appropriate conditionality for the IMF loan (alluding to US reservations with regard to the IMG loan being used for paying off Chinese debts). Secretary of State Mike Pompeo had earlier made it amply clear by saying “there is no rationale for IMF tax dollars and associated with that American dollars that are part of the IMF funding, for those to go to bail out Chinese bondholders or China itself”.

 

As if economic challenges were not enough, the global financial watchdog Financial Action Task Force (FATF), at its recent plenary in Orlando, categorically told Pakistan that it had failed to uphold its commitments towards taking action against terror financing. In a statement issued, FATF also stated that if Pakistan failed to complete its action plan by October, FATF would decide “the next step”. This was considered a strong warning, though for the time being Pakistan had prevented itself from being blacklisted by FATF.

 

Time is running out for Imran Khan. A one-dimensional approach towards the complex economic challenges and unnecessary witch hunting against his predecessors will not help. The Pakistan PM needs to think out of the box and needs to stop blaming past dispensations for the current economic mess. Even if previous PPP and PML-N governments were to blame, the fact is that the PTI has got a mandate for change and Khan’s lack of direction is beginning to disappoint even some of his ardent supporters.

 

It also remains to be seen whether the current crisis results in the PPP and PML-N finding common ground and mounting a challenge to the PTI government. In politics a week is a long time, and in recent weeks both PPP and PML-N seemed to be working towards not just finding common ground, but also putting the government on the mat on crucial policy issues.  If the PTI government fails to come up with a cohesive strategy to put the Pakistan economy back on the rails, traditional political parties which were rejected in the 2018 election may get a significant boost and their revival cannot be ruled out.



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