Under the leadership of cricketer-turned-politician Imran Khan, Pakistan has inherited the legacy of economic and political instabilities of earlier governments, and the new administration is struggling to wade through the lingering financial crisis.
While American assistance was crucial to Pakistan maintaining its foreign currency reserves and Washington’s support was needed to secure International Monetary Fund (IMF) loans, American sanctions forced the country to tilt toward China and Saudi Arabia this time around. American assistance was evident when Pakistan secured $6.6 billion in loans to overcome its balance of payment crisis in 2013.
However, Pakistan’s relations with the US took a nosedive in January 2018, when the Trump administration suspended most security assistance following a freeze of $255 million on the grounds that the country had failed to fully commit to fighting terrorism. While stringent American sanctions pushed Islamabad into Beijing’s sphere of economic influence, the Pakistani government, it was argued, reeled under unremitting Chinese debts, which were unlikely to be repaid unless Pakistan turned to the IMF for fresh loans.
Further, Pakistan has been included in the “grey list” of the Financial Action Task Force (FATF) for its failure to freeze the assets of terror outfits, compounding the financial crisis by placing Islamabad’s banking and monetary transactions under global scrutiny. Pakistan’s economy slowed, prices of fruits and vegetables shot up and exporters in the key textile sector had a tough time. In a desperate move, Khan removed finance minister Asad Umar (a close aide) and replaced him with a technocrat, Abdul Hafeez Shaikh. The recent $6 billion “bailout” loan from the IMF must have come as a great relief to Pakistan, and it has been argued that the country must not squander the package, which has come under more stringent conditions than in the past.
While the IMF loan of $2 billion a year (a 3-year package) pales in comparison to Pakistan’s total foreign debt of $90 billion, the country may have to undergo major structural changes to meet the IMF’s tough economic terms and conditions, which could undercut common strategic objectives that the government is pursuing with China in the China-Pakistan Economic Corridor (CPEC).
While the IMF loan of $2 billion a year (a 3-year package) pales in comparison to Pakistan’s total foreign debt of $90 billion, the country may have to undergo major structural changes to meet the tough economic terms and conditions
While it is not hard to understand that for Pakistan to be more peaceful and stable it needs a peaceful and stable Afghanistan, Islamabad allegedly assisted the insurgency in its western neighborhood as a geopolitical tool to undermine Indian influence. This has consumed an enormous amount of Pakistani resources and undermined internal security.
Reportedly, when Afghan troops ended the siege of Ghazni last August, Afghan officials maintained that at least 70 Pakistani fighters were among the 400 terrorists killed. An official, speaking on condition of anonymity, said, “When there were ungoverned spaces during 1996-2001 when the Taliban were in power, groups such as LeT and JeM were able to set up camps and train in Afghanistan. During the assault on Ghazni city last August, there were reports of JeM and LeT elements fighting with the Taliban.”
Far from achieving peace, Afghanistan and Pakistan very often became entangled in a blame-game, accusing each other of supporting terror activities against the other. It is argued that Islamabad would prefer an unstable Afghanistan to a peaceful one as long as mutual antipathy and distrust characterize their relations. Pakistan has for a long time pushed a theory that India’s enhanced presence in Afghanistan would encircle it from two sides by squeezing it in the middle. Therefore, it has expressed apprehension regarding the Indian presence in Afghanistan. This has resulted in the US limiting New Delhi’s presence largely to non-military developmental aspects. Pakistan argues that it pursues legitimate security interests in Afghanistan.
With the perceived loosening of Indian ties and influence in the Central Asian region after the dismantlement of the Soviet Union (India’s close partner during the Cold War), Pakistan was eager to extend both trade and political ties in the region. This required stability in Afghanistan, which had been torn apart by civil war and the local rule and influence of warlords. When Gulbuddin Hekmatyar, a former Afghan warlord, who recently said there is “no doubt” neighboring Pakistan supports the Afghan Taliban, failed to subdue other ethnic forces in Afghanistan, the government of Benazir Bhutto prepared the groundwork to use the Taliban to bring stability to southern and eastern Afghanistan.
Bhutto’s government was eyeing trade routes that could be opened and linked to different resource-rich Central Asian states. Barnett R. Rubin argues: “Since the fall of 1991, when the Soviet Union disintegrated, moderates in Pakistan’s foreign policy establishment led by then-minister of state for economic affairs Sardar Asif Ali had argued that opening trade with the new states of Central Asia, not an Islamic campaign, should be the focus of Pakistan’s foreign policy on its northwest borders.”
However, the act of resorting to using radical Islamic groups to enhance geopolitical influence has proved to be a boomerang for Pakistan in the long run. It has kept Afghanistan boiling with the continuous spilling of human blood as last year’s UN Assistance Mission in Afghanistan (UNAMA) data has suggested, and Pakistani citizens have very often fallen victim to the rising menace of militancy.
Pakistan’s sense of insecurity arising from India’s growing economic clout and diplomatic influence became palpable in its opposition to Afghanistan’s membership in the South Asian Association for Regional Cooperation (SAARC). It can also be seen in its desire to keep Afghanistan and Central Asia outside India’s sphere of influence by using the Afghan Trade and Transit Agreement of 1965 to deny an overland route to India to supply goods to them.
New Delhi also claimed Pakistani involvement in the terror attacks on the Indian embassy in Kabul and its consulates, including the one in Jalalabad, and the abduction of Indian engineers engaged in non-military reconstruction activities. On the other side, Pakistan continued to blame the Indian intelligence agency, Research and Analysis Wing (RAW), for fomenting instability in Afghanistan and Pakistan. Pakistan Foreign Office spokesman Mohammad Faisal’s response to a question pertaining to US President Donald Trump’s remarks about India playing a role in the conflict-ridden South Asian country in the recent past that “India has no role in Afghanistan” raised serious doubts about whether Islamabad would ever allow New Delhi to have a meaningful role in peacemaking and the political processes of the war-torn country.
Pakistan’s hesitation in allowing India to have non-military economic and political roles raised doubts about whether Islamabad had legitimate security interests in Afghanistan. Undermining the regional integration process, Pakistan resisted the Indian efforts to introduce regional trade and connectivity proposals and pushed three agreements on roads, rail, and power that New Delhi came up with during the deliberations of the 18th SAARC Summit held in Kathmandu in November 2015.
A confluence of factors such as overreliance on Islamic radical groups for geopolitical influence, dependence on American military and development aid and allegedly diverting these to fund non-state actors (radical religious groups) and throwing weight behind Beijing more to promote geostrategic objectives than to meet economic needs under the CPEC project (many local communities expressed their dissatisfaction with the project) has left Pakistan’s economy in tatters.
Seeking a bailout and fresh loans from the IMF is not likely to address the broader economic malaise that has plagued Pakistan’s economy over the years. Prime Minister Khan’s government must consider diverting internal resources and external economic assistance to development purposes and devise ways to participate in the regional integration process, which will help Pakistan to better manage its economy in the long run.