The State of the State

Spearhead Analysis – 30.03.2018

Pakistan Flag PicturePakistan is well into the election year and has already passed the first milestone—the Senate elections. Except for the jarring comment on the new Chairman by the Prime Minister (who says he isn’t the Prime Minister) and the usual talk of ‘horse trading’ most people are relieved and looking forward to a refreshed Senate with a new Chairman and a refreshingly new leader of the opposition in the Senate. The obstacle of delimitation of constituencies has also been crossed—almost. There are two months to go before the present government and the assemblies end their term and there is much activity in anticipation of the formation of an interim government that will precede general elections by 60 days. The general perception is that elections will be held on time give or take a week or two; and an assurance to this effect has been held out by the Chief Justice, the Army Chief and the Election Commission. This has, however, not stopped speculation about the interim set-up being prolonged to ‘set things right’; but there are few takers of this view. The country is looking forward to the elections and a new government.

The political scene is chaotic and the emphasis remains on pulling down the others rather than engaging in meaningful debate on the ‘critical’ issues facing the country, which could help lift the profile of a political party or leader above the rest. The new kids on the block will be the new far right religious political parties—this would be in line with the populist nationalistic trends all over the world. The PTI has managed to break the two party hold on politics but some missteps have led to an erosion of its early success. The PML(N) despite all its problems remains viable, though there are signs of a break from within especially if its leadership is convicted in the judicial process currently underway. The PPP remains region oriented and the MQM has problems that give its breakaway faction an edge. The media is having a field day as it covers events, analyses, statements and trends in the minutest detail.

Recent remarks attributed to the Army Chief and now labelled the ‘Bajwa Doctrine’ are being endlessly debated. The Army Chief in an ‘off the record’ (but widely reported) interaction with the media drew attention to the new ground realities in the region and the need for Pakistan to reorient policies to those realities rather than remain anchored in past mindsets and policies. There was no reference to a new doctrine and nor was there a hint of any transformation in the military that is now possibly the most combat hardened force ever. There was reference to the state of the economy, the internal political situation, foreign policy reorientation, and the impact of the 18th Amendment (clarified by the DG ISPR), because the security environment created after great sacrifices encompasses all these factors. A vibrant discussion is now taking place in the print and electronic media and the political leadership has also been jolted into action to reassess their strategies. The Chief Justice has also stepped out to pick up the slack in governance and is working tirelessly on a whole spectrum of issues that need attention and resolution. He has also firmly quashed speculation of a ‘judicial martial law’ and structures like a ‘technocratic government” and so has the Army Chief who has also voiced support for the judiciary.

The Trump administration has triggered a ‘series of unfortunate events’ and the US President is stepping up the pressure on Pakistan. This coupled with anti-Pakistan ‘hawks’ increasing pressure in DC, the ‘imminent’ inclusion of Pakistan on the FATF watch list a few months away, India exploiting every vulnerability and Afghanistan joining the bandwagon to try and ‘bully’ Pakistan, a strong and steady hand is needed to guide the country through the election year. Some hard decisions will have to be taken to reorient policies and to set a new strategic direction. Within this context while security assumes paramount importance, there is a dire need to focus on the geo-economics as economic stability and security are inextricably intertwined. Regional connectivity and trade should be the new ‘buzz words’ and Pakistan needs to capitalize on its strategic location to develop viable long-term economic linkages, while defusing regional rivalries to ensure the security and integrity of the state.

Perhaps the most important, the most significant and the most urgent issue being debated is the state of the economy and shape of things to come in the economic sphere. The internal stability, national security, and the influence that foreign policy can gain in the region and beyond, all depend on the state of the economy. The economy will determine the future of the country. There are several aspects that are being discussed. The fact that external debt is around $93 billion – almost a third of the GDP; and Foreign Exchange reserves of the State Bank of Pakistan (SBP) are down to almost $12 billion – a drop of 25% over 12 months is creating serious concerns. The rupee fell 4.4% in one day and this on top of a 4.7% drop last December. The Dollar is now stabilizing at around Rs.115 from the earlier rate of around Rs.111. The question being debated is whether this is a strategized and coordinated event or is it a collapse triggered by the reaction to market realities – as demand continues to outstrip supply and the SBP no longer has ‘buffer’ reserves to ‘manage’ the exchange rate. The State Bank attributed it to ‘payment pressures building up’ and because ‘market driven adjustment in the rate will continue to contain the imbalance in the external account and sustain a higher growth trajectory’. Bloomberg, of course, chipped in with its comment naming Pakistan as the ‘country with the fastest depleting foreign exchange reserves.’ The general view is that it was an ‘orchestrated move in line with the IMF recommendations to make exports more competitive’ and that it was a well-timed move in the election year in the interest of the country. Some economists are predicting a return to the IMF sometime in April.

Not everyone is painting a dismal economic scenario. It is being said that a current account deficit in a developing country is not the disaster that it is made out to be. It actually indicates investment and growth. CPEC related investment is being seen as boost for future exports. Crude oil at $46 a barrel is being seen as sustainable but a move to $80 could spell trouble. The debt is also being justified as manageable and not something catastrophic. The exchange rate development is being linked to a possibly forthcoming well thought out Amnesty Scheme that will allow Pakistanis to bring assets home from an increasingly hostile environment abroad. It is expected that at least $5 billion could come into Pakistan under the proposed scheme. The government is also being asked to link this with reforms in the tax structure and the real estate sector. The suggestion is that a flat rate of 1.5% or 2% should be the only tax payable on real estate transactions. A recent upbeat article listed the many achievements that the country has made in education, infrastructure, health care—not enough but considerable, and then there was the UN sponsored happiness survey that concluded that Pakistanis were a happy lot. The country has shown dogged resilience in the face of daunting odds. Decisions made under external pressure must not jeopardize the consolidation of gains made after enormous sacrifices gains and all institutions including the media must be on guard against externally sponsored subversion of institutions and destabilization. Sincere leadership, and objective and determined decision making is required to provide direction for setting the path right. One hopes the upcoming elections will help improve the state of the State.

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