H I G H L I G H T S
• Developments in Pakistan
• Developments in Afghanistan
• Political uncertainty in Punjab
• Civil-military equation
• Financial Action Task Force (FATF)
• Taliban defy international pressure to stick to conservative agenda
• Terror and violence
II Developments in Pakistan
Pakistan’s economic survey for the fiscal year July 2021 to June 2022 places GDP growth during the first eleven months of the fiscal year at 5.97% as against the target of 4.8%. It identifies shrinking fiscal space, inflationary pressure (annual inflation at 11.3%), mounting current account deficit, growing financing needs, exchange rate pressure and energy sector crisis as the main challenges facing the economy. The Shehbaz Sharif government has stated that the higher than expected growth resulted from low interest rates and an expansive fiscal policy following the growth oriented budget presented by the Imran Khan government last year and is unsustainable. It would be recalled that last year’s budget had put Pakistan’s Extended Fund Facility (EFF) with the IMF in jeopardy, necessitating fresh negotiations to revive it, which still continue.
The government presented the budget for the fiscal year July 2022-June 2023. It envisages total expenditure of Pak Rs.9.5 trillion, out of which nearly 58% is meant for debt servicing and defence. The estimated expenditure of Pak Rs.5.47 trillion on these two items exceeds the net estimated revenue of Pak Rupees 4.9 trillion after distribution of the share of provinces – a situation that has continued year after year, with financing of the remaining items of expenditure mainly from borrowings and external receipts. Economic growth in 2022-23 is expected to be 5%. The defence budget has gone up by over 11% than last year, while the outlay for the federal Public Sector Development Programme (PSDP) has gone down by over 19%, for the provincial PSDP by 16% and for education by 1.5%. The target for fiscal deficit is 4.9% of GDP and inflation is expected to average at 11.5%. The budget is aimed essentially at meeting the immediate conditions of the IMF for the badly needed revival of the EFF and fails to address the structural problems of the Pakistani economy such as low resource mobilisation, low savings, heavy and unaccountable defence spending, heavy dependence on borrowing and privileges enjoyed by certain elite groups. 63% of increase in the tax revenue envisaged in the budget is to come from indirect taxes, resulting in heavier burden for the common man.
Pakistan’s negotiations with the IMF for revival of EFF continued, but the fund was not willing to go merely by the projections made in the budget or the assurances of the Pakistan government. Thus, the Memorandum of Economic and Fiscal Policies received by Pakistan from the Fund requires the federal government to conclude an agreement with the provinces regarding the cash surplus from provinces included in the budget, obtain approval of the federal cabinet to increase in the energy sector prices and bring about complete deregulation of the petrol pricing mechanism, allowing the market to determine retail prices. Subject to fulfilment of these conditions, Pakistan is likely to get $1.9 billion from the Fund by end July or early August. In the midst of this uncertainty, bad economic news continued to pour in, with inflation in June touching 21.3%, the highest in 13 years and trade deficit ballooning to $48.66 billion in 2021-22 compared to $30.96 billion in the previous fiscal year due, inter alia, to increase in the oil prices.
Political uncertainty in Punjab
Even as the federal government grappled with complex governance challenges, particularly on the economic front, it was unable to establish a firm control on Pakistan’s Punjabi heartland. Facing hurdles from the Punjab assembly Speaker, Pervaiz Elahi, who has cast his lot with PTI and is himself a candidate for Chief Ministership, the Hamza Sharif government in Punjab had to summon a parallel session of the assembly without opposition members and in a building outside the assembly premises to get the budget for 2022-23 passed. Disqualification of twenty five PTI defectors, who had supported Hamza Sharif during the election of Chief Minister in April, cast a shadow over that election. Subsequently, the Supreme Court ruled that re-election to the post of the Punjab CM would take place on July 22 after the by-elections to 20 assembly seats on July 17, necessitated by the disqualification of PTI defectors. In view of the narrow difference between the numbers with Hamza Sharif and with the opposition in the Punjab assembly, Hamza’s fate will be determined by the results of the by-elections. In the meanwhile, both PTI and PML(N) have continued to hold public rallies in Punjab to demonstrate their support, with crowds in Imran Khan’s rallies rivalling those of PML(N).
The Pakistan army continued to get flak, mainly from Imran Khan’s supporters, for interference in the political affairs of the country. Earlier, similar allegations had come its way from leaders of the Pakistan Democratic Movement (PDM), notably Nawaz Sharif. In the light of army’s active role under General Bajwa in ousting Nawaz Sharif from power, rigging the 2018 election to bring in Imran Khan and finally abandoning him in favour of a government led by Shehbaz Sharif, the allegations are not unwarranted. Facing the heat, army ‘sources’ put out reports that General Bajwa had issued fresh directions to all his commanders and senior officers, including in the ISI, to stay away from politics. Similar instructions were also reported to have been given by DG ISI to his officers. However, in the midst such reports, the Shehbaz Sharif government gave a legal cover to the hitherto informally accepted role of ISI in vetting civil servants before their induction, postings and promotions. The move came in for criticism not only from PTI, but also some senior leaders of the governing coalition.
Financial Action Task Force (FATF)
At its meeting in June, the FATF made the initial determination that Pakistan had substantially completed its two action plans, covering 34 items and warranted an onsite visit to verify that implementation of its anti-money laundering and counter terror financing reforms had begun and was being sustained, and that necessary political commitment remained in place to sustain implementation and improvement in the future. It has been reported that a monitoring team of FATF may visit Pakistan in August/September. The Pakistan army and political parties, notably PTI and PML(N), claimed credit for the above observations made by the FATF. In the midst of much jubilation in the country on its imminent exit from the grey list of FATF, Minister of State Hina Rabbani Khar said that it was too early to celebrate the latest observations of the FATF, as it was not the end, but just the beginning of Pakistan’s exit from the grey list. Pakistan is counting on the thaw in its relationship with the US following exit of Imran Khan to come out of the grey list.
It was reported subsequently that days before the FATF meeting, the Pakistani authorities had arrested Sajid Mir, who had played a key role in the Mumbai terror attacks and was in the past declared dead by the authorities; he was convicted by an anti-terrorism court in Lahore and sentenced to fifteen and a half years imprisonment. This was yet another indicator of the reluctant action taken against its high profile terror assets by Pakistan under the FATF pressure. It was reported that the Pakistani law enforcement agencies were also “looking for” another high profile terrorist and JeM chief Masood Azhar, who they maintain is “missing”.
Former Chinese Foreign Minister and Director of the Central Foreign Affairs Commission of the Chinese Communist Party Yang Jeichi paid a visit to Pakistan, accompanied by Vice Ministers of Foreign Affairs and commerce and Vice Chairman of the China International Development Cooperation Agency. Tardy implementation of and problems concerning the CPEC projects and security of the Chinese personnel working in Pakistan are reported to have been among the key issues for discussion. It was reported that Beijing was concerned at the periodic attacks on their nationals in Pakistan and dissatisfied with the Pakistani investigation into the killing of three Chinese staff of the Confucius Centre in Karachi earlier this year. It was further reported that the Chinese had sought permission to deploy their own guards for the safety of their personnel, which has not been granted by the Pakistan government so far. They are also upset about the Pakistan government not having cleared the dues of some Chinese companies. In this context, reports of IMF having asked Pakistan to renegotiate the CPEC energy deals to bring them in line with the terms offered to non-Chinese companies are relevant. This and Pakistan’s fiscal problems have held up more than Pak Rs. 300 billion due to the Chinese independent power producers. Prime Minister Shehbaz sharif assured Yang Jiechi of Pakistan’s full cooperation in timely implementation of the CPEC projects and both he and the army chief assured the Chinese visitor that fail-safe security would be provided to the Chinese nationals in Pakistan.
China continued to help Pakistan in tiding over its Balance of Payments problems. With the negotiations between Pakistan and IMF reaching an advanced stage, a consortium of Chinese banks concluded an agreement to provide a loan of $2.3 billion to Pakistan to shore up its foreign exchange reserves.
A senior tri-services delegation from Pakistan, led the army chief General Bajwa visited China in June and held discussions with senior Chinese military and civil functionaries. The Chinese side was led by the Vice Chairman of the Central Military Commission in the discussions. It was agreed to enhance cooperation in training, technology and counter-terrorism domains.
Speaking at the Institute of Strategic Studies in Islamabad, Foreign Minister Bilawal Bhutto described Pakistan as “internationally isolated and disengaged” (he put the blame for this situation on the Imran Khan government) and, inter alia, posed the question whether cutting of ties with India served the country’s interest. “That I as foreign minister, as a representative of my country, not only not speak to the Indian government but I don’t speak to the Indian people and is this the best way to communicate or achieve Pakistan’s objectives?” he is reported to have asked. Referring to India’s policies in Kashmir and “Islamophobia”, which he claimed had made engagement with India difficult, Bhutto said that while some would oppose trade with India under these circumstances, it had the potential to reduce tensions between the two countries. He made a strong pitch for engaging with the Indian people instead of talking at them through the media, press conferences and press releases. Coming as they did in the midst of Pakistan’s strident anti-India rhetoric, the remarks represented a small step forward, though the Minister did not explain how he proposed to engage with the Indian people without engaging with the Government of India. Not unexpectedly, Bhutto’s remarks came in for criticism from PTI leaders, who described them as irresponsible. The Pakistan Foreign Office clarified that there was no change in Pakistan’s policy towards India and there was a national consensus on this. It added that Bhutto’s remarks were being interpreted out of context and portrayed incorrectly and can be better understood in the overall context of his key message of conflict resolution in his address. The onus to create an enabling environment conducive for a meaningful and result-oriented dialogue is on India, the Foreign Office concluded. The above episode is an indicator of the conflicting strands in the Pakistani thinking concerning India – its current difficulties, notably economic problems, requiring an engagement with India to tone down tensions and possibly resume trade and the corner into which it stands painted by the policy of the Imran Khan government to ask for reversal of India’s August 2019 steps concerning Jammu and Kashmir for resumption of trade and engagement with India. Pakistan needs a face saver to come out of that corner. While asking for reversal of India’s August 2019 steps in J&K, Pakistan’s emphasis has been on restoration of statehood to J&K and no change in demography there. Therefore, a move on elections in J&K and restoration of statehood, which Government of India has committed to, as and when it comes about, could possibly provide a face saver.
Reacting to media reports regarding India planning to hold G-20 meetings in J&K, spokesman of the Pakistan Foreign Office said that Pakistan completely rejects any such attempt by India. China too opposed the reported Indian move. The spokesman of the Ministry of External Affairs said that India would assume the presidency of G20 from December 2022 and apart from the summit next year, a large number of G20 events at different levels would be organised across the country and there was no need to speculate at this stage.
III Developments in Afghanistan
Taliban defy international pressure to stick to conservative agenda
In spite of pressure of the international community and calls from within the Afghan society and sections of the Taliban for resumption of girls education, the conservatives among the Taliban have continued to strengthen their conservative agenda in the country. There is no sign of the Taliban moving towards an inclusive government and restoration of rights of women and girls. There have been other reports of violations of human rights and targeting of Tajiks in Panjshir, Baghlan and Takhar provinces as well as beheading of some Tajik resistance fighters by the Taliban. Torture of civilians in Panjshir has also been reported. EU expressed concern at deterioration of the human rights situation in Afghanistan. Speaking at a session of the UN Security Council, the acting head of United Nations Assistance Mission in Afghanistan said that the Taliban have increasingly restricted the exercise of basic human rights, such as freedom of peaceful assembly, of opinion and expression and have been quelling dissent. Speaking to the UN Human Rights Council, the UN Secretary General said that the Taliban government had resulted in nearly 20 million women and girls being silenced and erased from sight.
The Taliban response to the above reports has been a blank denial, foot-dragging on girls’ education and the claim that their government is already inclusive. In this context, there were some expectations from a gathering of Islamic clerics that took place in Kabul at the end of June, particularly since some Taliban leaders had said in the past that the issue of girls education would be resolved through discussion by Islamic clerics. The meeting began amidst the sound of gunfire near its venue – a sign of the serious security challenges that remain. It was attended by the Taliban Prime Minister Mohammad Hassan Akhund and other top members of the Taliban government and thousands of Islamic clerics from across the country. The reclusive Supreme leader of the Taliban, Haibatullah Akhundzada also addressed the gathering. After receiving a pledge of allegiance from the gathering, he hailed the Taliban victory last August, adding that “the success of Jihad is not only a source of pride for Afghans but also for Muslims all over the world.” He asked traders to return and invest in the country, saying overseas aid could not build the economy and would make Afghans more dependent on foreign money. He said that the Taliban wanted peace and security and neighbouring countries had nothing to fear. There were reports of one or two participants having raised the issue of girls education, but it found no mention in the outcome of the meeting. Some key observations in the eleven point resolution issued at the end of the gathering were: pledge of allegiance to the Taliban leader, call upon the international community to release Afghan assets and recognise their government, non-interference in the affairs of other countries and a call on the Taliban government to attend to religious and modern education, health, agriculture, rights of ethnic minorities and women and children and economic development within the structure of Sharia. It has been the long standing position of the Taliban that all actions of the government must be in accordance with Islam, which, combined with their ultra conservative views on what constitutes Islamic principles, has led to very oppressive governance practices. In essence, the gathering of clerics ended up endorsing the Taliban rule and their conservative agenda.
Terror and violence
Incidents of terror and violence continued in Afghanistan. Blasts in Kabul, Kunduz and Nangarhar killed scores and injured many others. Yet another terror attack targeted the premises of a Gurudwara in Kabul and was widely condemned. Islamic State claimed responsibility for the attack. Significantly, it came close to the prospects of establishment of an Indian official presence in Afghanistan and seems to have been a warning by those not happy to see India return to Afghanistan.
In keeping with its policy of calibrated engagement with the Taliban, an Indian ‘technical team’ reached Kabul and will be stationed at the Indian Embassy. Government of India said that in order to monitor closely and coordinate effective delivery of humanitarian assistance and in continuation of India’s engagement with the Afghan people, an Indian technical team had been deployed at the Indian Embassy in Kabul. Notwithstanding the above stated purpose for deploying the team, it would also provide a continuous interface with the Taliban government, much like other countries, who have stationed their diplomats in Kabul for coordination work, without recognising the Taliban government.
India was quick to deliver relief assistance to Afghanistan in the wake of extensive damage caused by an earthquake in the eastern part of the country.
Questioned on the possibility of the Taliban sending Afghan army personnel to India for training during a TV interview to an Indian channel, the Taliban Defence Minister Mullah Yaqoob said that defence relations would be possible only when Afghanistan and India have cordial political and diplomatic relations.
Afghanistan “strongly condemned” the remarks of a spokesperson of the ruling party in India concerning Prophet Muhammad.
The US Special Representative for Afghanistan, accompanied by an official delegation, including a representative of the US Treasury, met Taliban representatives in Doha. A Taliban spokesperson stated that the talks focused on de-freezing the frozen assets of Afghanistan in the US. It would be recalled that in February this year, the US President had set aside half of the US$ 7 billion Afghan assets in the US for the benefit of the Afghan people, withholding the remaining amount for the terrorism related lawsuits in the US courts against the Taliban. A Spokesperson of the State Department confirmed to Voice of America that the Biden administration was working to find an appropriate mechanism that could serve as a steward of the $3.5 billion set aside by the President for the Afghan people. He added that the US administration was working to address complicated questions about the use of these funds to ensure that they benefit the Afghan people and not the Taliban.