Triumph at the UN, turmoil at home: Pakistan's IMF woes and political challenges ahead

Pakistan scored a major triumph as its resolution introduced at the United Nations on behalf of the 57-nation OIC, against the burning of the Quran at Stockholm, called for the UN rights chief to publish a report on religious hatred and for states to review their laws and plug gaps that may “impede the prevention and prosecution of acts and advocacy of religious hatred”. It was strongly opposed by the United States and the European Union but supported by India. All that should have been a source of triumph for Foreign Minister Bilawal Bhutto, especially since Pakistan is likely to go for elections soon. But along comes a report from the International Monetary Fund that is scathing, and quite unlike the usual language from that venerable body. The IMF vents its exasperation For those who are not in the know, financial institutions are usually extremely circumspect about what they put in their reports. So the language of this one is significant. First, it says Pakistan’s risks are “Exceptionally high’. That’s a very strong terminology in the financial world. The report does praise pandemic recovery and reforms instituted in early 2022, which allowed Pakistan to gain international finance for the last time in February 2022. After that was a ‘back sliding’ that brought matters to the present pass where “financial pressures ahead have become formidable…..while external market financing has dried up, and credit rating agencies have downgraded Pakistan to just above default rating”. In other words, things recovered under Imran Khan but worsened under this government. In full fairness, that also included severe floods and a heat wave that destroyed much of the crops. But the report flags ‘a crawl like behaviour’ that sends foreign exchange rate plunging to just enough for half a month of imports, and a free fall in all areas of economic activity. Inflation meanwhile is at 38 per cent in May, worse than even Sri Lanka at 25.2 per cent, all of which means a shrinking revenue base. The real effective exchange rate is at minus 6.0. In sum, a situation made worse by sheer inefficiency. As the report notes, despite the massive external debt of $127 billion, the Debt Management Office started under the State Bank of Pakistan’s prodding, remains unstaffed and inoperational. The IMF disbursement of $3bn is the proverbial drop in the bucket. In sum, there is no way out of debt for Pakistan for the foreseeable future, with even the Asian Development Bank report of 2020, concluding that even with a 10 per cent GDP growth, it would be just able to maintain the (then) current level of debt. Needless to add, GDP has since been projected as 0.29 per cent till June 2023, and debt has only gone up. The political backdrop The IMF bailout was clearly hinged on the provision of financial support of $2 billion from the Saudis just a day before the IMF announcement. This was less than a billion that was asked, and possibly at interbank rates, (then 5.95 per cent) as against the earlier interest-free, and later 4 per cent interest. Total debt to Riyadh has now climbed to $5 billion. What ‘conditions’ were imposed is unclear, since Riyadh is far more reticent than even Beijing. China also came through with a $600 million loan apart from a $5 billion in debt rollover. The Saudis were far from enthusiastic, and Chinese foreign minister Qin Gang had then given Islamabad a public tongue lashing on shoring up not just its economy, but also its political situation. That was on 6 May. Three days later, the army arrested Imran Khan setting in motion a trail of events that a lesser man would have quailed at. Yet nothing seemed to faze Chief of Army Staff General Asim Munir, not even firing three army officers, and putting on trial several others including the wives and children for allegedly inciting riots and putting civilians on trial in military courts. Clearly, that message from Beijing mattered. After all, it holds more than 30 per cent of total debt, at more than $30 billion, and with commercial interest rates, relative to the $45 billion owed to multilateral banking institutions. Who wants to be prime minister? It is under such conditions that Pakistan’s politicians are readying themselves for elections. Questions in the National Assembly revealed that the expected costs to the national exchequer are over Rs47 billion, more than twice the 2018 polls cost. A major chunk of Rs 15 billion will go to law enforcement agencies to deploy troops to ensure security during the polling days. In the last elections, Rs 9 billion was paid to the army for its assistance. That figure will probably go up three-fold or more, given that no one in their right minds expects elections to the ‘free and fair’. For one, without Imran Khan, the whole exercise would be a joke, given that there is nothing to indicate a significant drop in popularity, which in March was 61 per cent. Meanwhile a so-called poll by a Democratic Institute – which joined Twitter on March 2023 and is “Islamabad based’ – claimed that Nawaz Sharif would win 71 per cent of the vote, and Imran Khan at 2 per cent. That was doing it too brown. A  fact check by Geo TV said that no such Institute exists or produced any credible report. The most likely horse seems to be Bilawal Bhutto, who has overtaken all previous leaders in his bad-mouthing of Prime Minister Narendra Modi; at the UN where he castigated him most unwisely as a ‘butcher’, and his recent statements at the meeting of the Shanghai Cooperation Organisation where he threatened India, and reiterated his position on Article 370. Clearly, he was playing to the military gallery. And the public votes with its feet Meanwhile, Pakistanis at all levels are jumping ship. The tragic death of 300-plus Pakistanis crowded into a boat off the coast of Greece in July this year, underlined the desperation. Last year, more than 800,000 professionals left the country in search of better economic prospects abroad, as even middle-class people have been pushed to the brink of poverty. This is an impoverishment of a society that desperately needs skilled and educated people. The World Bank has called for an urgently increasing workforce quality observing that the HCI (Human Capital Index) is lower than the South Asian average of 0.48, Bangladesh’s 0.46 and Nepal’s 0.49, and more comparable to Sub-Saharan Africa’s, which has an average HCI of 0.40. Another reason for this low performance is low female labour force participation. World Bank officials note “Pakistan’s human capital challenges are among the most serious in the world—it is a human capital crisis that is profound, silent and with far reaching negative effects on the potential of the country and its people”. The most moot point here. The success of the China-Pakistan Economic Corridor which Pakistan sees as a lifeline, depends on the availability of human capital to allow benefits to flow to the country. As of now, it is China directed, driven and led. For any hope at all, that has to change. Meanwhile, a UN Report observes that Pakistan’s elite groups, including the corporate sector, feudal landlords, the political class and the country’s powerful military, consume an estimated $17.4 billion, or roughly 6 per cent of the country’s economy. The military budget continues on course, though the army pleads that it is now 2.2 per cent of GDP rather than 2.8 earlier. Meanwhile, available figures show that it is 17.5 per cent of total current expenditure, while India’s spending is only at 14.3 per cent of total. And all that data also answers the question as to why anybody would want to be the leader of a state that is rapidly slipping downslope, either directly as prime minister or indirectly as army chief. It pays and pays well. In sum, therefore, no matter how badly the country fares, or who comes to power, Pakistan’s course will remain constant, because the rich and powerful remain not just unaffected, but make a nice profit. No World Bank conditionalities are likely to make a difference, not even increased taxation. The super-rich are adept at sidestepping that, which is why the World Bank’s report also calls for transparency. That’s not going to happen anytime soon. Meanwhile, in the short term, expect severe violence as polls come about, and Imran Khan’s supporters vent their anger. And that’s not including the almost daily violence on the borders with Afghanistan, so much so that one heard Pakistan’s interior Minister Rana Sanaullah make the rather quaint allegation of Afghanistan providing ‘safe havens’ to terrorists. It’s like an echo chamber there. The way out? Pakistan has to admit to itself what everyone knows. Its main problem is its own policies, not India or anyone else. Consider for a minute. India too faced heat waves and natural disasters that destroyed its wheat crop, and lead it to ban exports. That might happen this year with rice. The difference is that Delhi recognises and responds to a problem. That’s called governance. It’s not easy, and in Pakistan, has been ignored for decades. Time to step up and make that difference. Your neighbours might just help. The writer is a Distinguished Fellow at the Institute of Peace and Conflict Studies, New Delhi. She tweets @kartha_tara. Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect Firstpost_’s_ views. Read all the  Latest News ,  Trending News ,  Cricket News ,  Bollywood News , India News  and  Entertainment News  here. Follow us on  Facebook,  Twitter and  Instagram.