Even so, while other challenges are multidimensional and will require the cooperation of a multitude of institutions and powers, it is the economy where the PTI’s performances would be thoroughly, and relentlessly, gauged.
And the good news for the PTI – should they choose to look at it this way – is that there is a lot that needs fixing on the economy front.
Numbing Numbers
Between December and August, the Pakistani rupee has lost almost a fifth of its value. While the currency was artificially kept around the 100 mark to the US dollar for much of Ishaq Dar’s tenure at the helm of the finance ministry, it touched 130 in the lead up to the election, before settling around 123 following a $2 billion loan from China.
Following Nawaz Sharif’s ouster as the Prime Minister in July last year, and the political uncertainty that ensued, the Pakistani stock market has gone from being Asia’s best to the world’s worst in terms of its performance. The stock market fell to its lowest of the year ahead of the elections as it came crashing down the 40,000 mark.
Even more grueling are the deficit numbers. The current account deficit is 5.7 percent of the GDP, valuing $18 billion, while the budget deficit crossed Rs 2 trillion last month, and an additional trillion worth of circular debt.
T-bills worth Rs 4 trillion are approaching their expiration and there are $8 billion in foreign debt servicing scheduled for the next 12 months.
Another bailout package from the International Monetary Fund (IMF) is the likeliest option for the Finance Minister in waiting Asad Umar.
Out on Bail
“Risks to Pakistan’s medium-term capacity to repay have increased significantly… due to mounting external and fiscal financing needs and declining reserves,” reads a recent IMF report. The statement underlines that the conditions that the Fund will set up for the next bailout might be the harshest yet.
“This is why Pakistan will have to carry out a debt sustainability analysis for the very first time,” says leading economist and political analyst Farrukh Saleem, adding that a hike energy prices ‘is a given’.
Another IMF condition that could put Islamabad in a fix is the transparency over projects related to the China Pakistan Economic Corridor (CPEC), the significance of which has been brought forth by US Secretary of State Mike Pompeo’s ‘warning’ to the Fund against ‘bailing out Chinese bondholders or China itself’.
Given the trade disparity between Pakistan and China, owing in large part to CPEC, it is Islamabad’s transactions with Beijing that have created the balance of payment crisis for Pakistan. What it leaves Pakistan with is a diplomatic question.
“The vast majority of Pakistan’s diplomacy is based on the economy. And unfortunately since my time till the present day it continues to be based on begging,” says Former Foreign Secretary Shamshad Ahmad.
Shamshad Ahmad adds that unless Pakistan gets out of this circle of begging – whether it’s the US, China or IMF – it would continue to be posed with diplomatic predicaments.
Taking Terror to Task
Just like Pakistan’s diplomacy is hinged around its economic failures, a lot of this in turn revolves around a flawed counter-terror policy where jihadists are shielded and used as assets both domestically and overseas.
While this security policy has resulted in tens of thousands of Pakistanis being killed, it has also pulverized the economy.
A development that delineates this correlation is the Financial Action Task Force (FATF) formally grey-listing Pakistan in June, a decision which had been taken in February.
This week a delegation affiliated with FATF’s Asia Pacific Group has been in Pakistan, underscoring the methods with which money laundering can be countered. But most of its focus – as has been the case in the past few months – was on groups affiliated with Hafiz Saeed, a globally designated terrorist that was also declared the same as per Anti-Terrorism Ordinance, 2018.
“Pakistan doesn’t have a convincing case when groups affiliated with Hafiz Saeed contested elections as recently as last month,” says Muhammad Amir Rana, Pak Institute for Peace Studies (PIPS) Director and author of The Militant: Development of a Jihadi Character in Pakistan.
He concedes that given that the security policy is dictated by the Army leadership, it would be hard for the PTI government to turn things around on this front.
Breaking the bank
Pakistan’s pursuance of the action plan given out by the FATF will determine its future on the grey list. If the measures are followed Islamabad will get off it, but should they deteriorate Pakistan could become only the third country to be blacklisted following Iran and North Korea.
Among the many problems that would pose is a potential global banking isolation, with major businesses refusing to engage with Pakistan. When on the grey list, all banking channels of the country are scrutinized, which can make transactions a cumbersome process, and many wouldn’t want to get involved in.
A prominent case for Pakistan was when Habib Bank Limited was asked to leave the US, and fined $225 million, over flaws in its systems, bringing the bank’s transactions with Saudi Al Rajhi Bank – which is linked to al-Qaeda – under scrutiny.
While the HBL case was never cited by FATF, it underscores the technical flaws in the local banking system.
“A major issue with our banking system is prevalence of undocumented transactions, which allow money laundering,” says former Caretaker Finance Minister Salman Shah.
“Another major hurdle is the fact that a significant chunk of transactions in the country are cash-based, with there being no mechanism – or capacity – to document this economy.”