Rising or Falling?

Spearhead Analysis – 16.04.2014

Ishaq Dar - PM Nawaz Sharif MeetingLike Pakistan Greece entered or re-entered the international bond market with a 3 billion Euro (4.1billion dollar) offering. This was seen as an act of desperation totally out of sync with the systemic economic difficulties that the Greek economy has been facing. The verdict was that this return to the international market in the absence of reforms would inevitably lead to more debt and that Greece would remain perennially dependent on support. The Greek problem has to be seen in the context of the European Union and strong German backing and strategic intervention. Pakistan’s situation is different.

What the Finance Minister of Pakistan has done is nothing short of a miracle. He has brought the Rupee to Dollar rate from a high of 107 to a low of 96. He has shored up Pakistan’s dwindling foreign exchange reserves that now stand at over 10 billion dollars. More dollars are expected from the sale of 3G and 4G licenses, US Coalition Support Funds, the IMF, the World Bank and the Islamic Development Bank. All this comes on top of the 1.5 billion dollar ‘gift’ from a friendly Arab state. He has successfully re-launched Pakistan into the international bond market with a two tranche bond launch totaling 2 billion dollars though his original target was a modest 500 million dollars. This will cost Pakistan 155 million dollars over the first 5 years and 82.5 million dollars over the next 5 years. All this has happened in spite of a below investment grade rating for Pakistan from Moody’s and Standard and Poor. Pakistan already has loans from IMF, Islamic Development Bank and a Consortium of bankers. Obviously US, IMF and WB vibes helped Pakistan and the overall liquidity in the international market was correctly read by the Finance Minister. Pakistan now has to undertake structural reforms to sustain itself on the track on which it has set itself.

Pakistan’s rise is however, being tempered by other factors. The admission by a minister that there is a problem—‘irritant’—in civil-military relations and the daily ‘battles’ being fought in the media have led to much unwarranted speculation. If major political forces are seen to be joining hands to cow down the military then more gauntlets may be thrown. This will not support the economic rise being orchestrated by the Finance Minister. The whole situation needs to be played down not up and the civil and military should be seen sitting together at the decision making table—the CCNS (Cabinet Committee on National Security) frequently so that institutions stop talking to each other through the media.

Another situation brewing is the fate of the ‘dialogue’ with the TTP (Tehreek Taliban Pakistan). The infighting between Taliban factions seems to have disrupted or at least interrupted the process. More ominous is the report that the TTP is reaching out to the Afghan Taliban leadership to intervene thereby signaling some kind of compact between these factions in the post 2014 situation in Afghanistan. If the dialogue process gives legitimacy and geographic space to the TTP then its nexus with the Afghan Taliban who may continue the fight in Afghanistan starts looking ominous for Pakistan and the region. Speculation triggered by the admission of a civil-military rift also hints at disagreement between the military and government on the dialogue and all matters connected to it like the release of prisoners. Again a joint presence at a formal decision making table could kill all speculation.

There are no two views on the need for good bilateral relations with all neighbors but much will depend on the outcome of elections in India and Afghanistan and Pakistan’s ability to forge good or at least functional relations all around. Pakistan should note that China’s clout is likely to grow as the Ukrainian crisis brings Russia closer to China. The SCO (Shanghai Cooperation Organization) is also likely to gain far more importance with Russian support. There are opportunities and challenges that have to be understood

Pakistan has to put itself on the right track in all policies not just the economic policy. This will not happen if it is not orchestrated without unimportant distractions.

(Spearhead Analyses are collaborative efforts and not attributable to a single individual)