Economic turmoil continues
In its World Economic Outlook, the IMF has projected that in the absence of further adjustment policies, growth in Pakistan would remain subdued at about 2.5% till 2024, with continued external and fiscal imbalances weighing on confidence. It forecast Pakistan’s growth rate at 2.9% and 2.8% for the current and next fiscal years respectively as against World Bank’s forecast of 3.6% and 2.7% respectively for the two years. The Fund estimated Pakistan’s current account deficit during the current fiscal year at 5.2% of GDP, projected to go up to 5.4% by 2024. According to media reports, the fiscal deficit is around 6% of GDP and even a cut in development expenditure will not arrest its growth because of rising defence expenditure and debt servicing. The rupee has been devalued by over 30% over the last year and could see further fall. Inflation is reported to be around 9% and expected to rise further. The government is heavily indebted to power producing companies (circular debt). Interest rates are rising, adding to business costs. A bailout from the IMF will require the government to take unpopular decisions by way of increase in taxation and reduction of expenditure. The resignation of Finance Minister Asad Umar during the month (covered below under Cabinet reshuffle) added to the economic uncertainty. However, an IMF mission arrived in Islamabad towards the end of April to resume talks on a three-year bailout package.
Cabinet reshuffle- Finance Minister resigns
Prime Minister Imran Khan reshuffled his cabinet. In the face of mounting criticism of the economic policies of the government, he offered the portfolio of Energy to Finance Minister Asad Umar, who chose to resign from the cabinet. Dr. Abdul Hafeez Sheikh was appointed the Adviser on Finance to the Prime Minister. Other notable changes were: the high profile Information Minister, Fawad Chaudhry was shifted to the portfolio of Science and Technology and the Prime Minister shed the Interior Ministry, directly under his charge hitherto, to appoint Brig. Ijaz Shah as the Interior Minister. Asad Umar’s departure from Finance Ministry was not altogether unexpected as he had faced widespread criticism for delaying a decision on the IMF bailout, devaluing the rupee substantially and raising interest rates, leading to stifling of the economy. In his departure statement, he referred, inter alia, to the difficult economic situation in which his successor would be taking up his responsibility. “The implementation of the IMF programme would be a major challenge,” he added. The new Adviser on Finance, Dr. Abdul Hafeez Sheikh is well connected in the Bretton Woods institutions, having worked in the World Bank. He also served as the Finance Minister of Sindh from 2000 to 2002, the Federal Minister of Investment and Privatization under Pervez Musharraf and the Federal Finance Minister from 2010 to 2013. He is well connected in the security establishment. Therefore, he would be better placed to take the tough economic decisions that lie ahead. The new Interior Minister, Brig. Ijaz Shah is a controversial figure. He was a trusted aide of Pervez Musharraf, headed the Intelligence Bureau from 2004 to 2008 and was accused of using it for political victimization. Former Prime Minister Benazir Bhutto had named him in a letter as the person who should be investigated in the event of her assassination. Speaking in the National Assembly, the PPP leader, Bilawal Bhutto referred to the allegations against Ijaz Shah concerning his involvement in the murder of Daniel Pearl.
In a repeat of sectarian carnage, a terror bombing killed 20 persons and injured nearly fifty in Quetta. The Shia Hazaras were the target of the attack, which was claimed by the Islamic State. However, it is well known that the cadres of the Sunni extremist group, Sipah-e-Sahaba that have been used by the security establishment to attack Baluch nationalists, have often indulged in sectarian killings on the side. In another terror attack a few days later, fourteen passengers, including some Pakistani navy personnel, were offloaded from buses and shot dead by terrorists, who were wearing uniforms of the paramilitary force- Frontier Corps, on the Makran Coastal Highway in Baluchistan. The Pak Foreign Office Spokesman claimed that Pakistan had repeatedly found and shared with the world evidence of India’s “sabotage activities and interference in Baluchistan” and the authorities would unearth the truth in this case also. However, in a subsequent statement, Foreign Minister Qureshi said that Pakistan expected both Iran and Afghanistan to take action against the terror groups behind the attack and added that the Baloch Republican Army (BRA) had claimed responsibility for it. He alleged that the training and logistical camps of an alliance of a number of Baloch terrorist organizations are based in Iran and the relevant information has been shared with the Iranian authorities. He further alleged that BRA has presence in Afghanistan too.
State targets Pashtun Tahafuz Movement (PTM)
The Pakistani state and Pashtun Tahafuz Movement, a movement for Pashtun Human Rights, appear to be on a collision course. Speaking to a gathering in South Waziristan, Prime Minister Imran Khan, who as an opposition leader had frequently criticized the brutal handling of the Pashtuns by the state, alleged that some elements operating in the region had been receiving money from abroad to push the youth of the tribal districts towards unrest. In a subsequent press conference, Maj. Gen. Asif Ghafoor, DG of ISPR, warned that while the army wanted to make every effort to address the grievances of the Pashtuns in the tribal areas, the manner of voicing the grievances, adopted by PTM, would no longer be tolerated. He alleged that PTM had been receiving funds from the Afghan and Indian intelligence agencies.
Though India had postponed the meeting of delegations of the two countries to finalize the draft agreement on the Kartarpur corridor, scheduled for April 2, pending receipt of certain clarifications from Pakistan, a meeting of the technical experts took place on April 16. In a subsequent statement, the Pak Foreign Office Spokesman expressed the hope that India would agree to hold a meeting at the earliest to finalize the draft. Separately, the two countries agreed to extend the agreement on the Lahore-Delhi bus service by five years till 2024.
In a statement on April 7, Foreign Minister Shah Mahmood Qureshi alleged that according to reliable intelligence, India was planning another attack against Pakistan between April 16 and 20. India rejected the allegation as “irresponsible and preposterous”.
Speaking to a group of foreign journalists, Prime Minister Imran Khan said that perhaps if BJP retained power in the Indian elections, some kind of settlement in Kashmir could be reached. He added that the other Indian parties would be afraid of a right-wing backlash in the event of a settlement on Kashmir. Separately, the Pakistan Foreign Office described a remark in the context of Pakistan’s nuclear threats, made by Prime Minister Modi in the course of the election campaign, as “highly unfortunate and irresponsible.”
India suspended cross-LoC trade. In a statement issued on April 18, the Ministry of Home Affairs said that Government of India had received reports that the cross-LoC trade routes were being misused by Pakistan based elements for illegal flow of weapons, narcotics and currency. MHA further stated that suspension of trade was meant to put into place a stricter regulatory regime to ensure that only bonafide trade took place for the benefit of the people of Jammu and Kashmir.
Around six weeks after the Balakot strike, Pakistan took a group of international journalists, mostly based in India, and some diplomats to the “impact site” of the Indian strike and a nearby madrassa. However, independent observers cast doubts on the visit organized by the Pakistanis so long after the strike. Some journalists, who accompanied the group, stated that they were not allowed to talk freely to the local people.
Prime Minister Imran Khan visited China from April 25 to 28 to attend the Second Belt and Road Forum in Beijing. Speaking at the Forum, he proposed a five point action plan for improving the Belt and Road Initiative (BRI) outcomes and called for removing barriers to sustainable growth and making development people oriented. His five point plan comprised joint efforts for mitigating climate change, establishing a BRI tourism corridor for promoting people to people contacts and inter-cultural understanding, setting up an office of anti-corruption cooperation, creating a poverty alleviation fund and further liberalization of trade and investment flows by encouraging private sector and businesses to collaborate in projects. He praised BRI as “a model of collaboration, partnership, connectivity and shared prosperity” amid growing geopolitical uncertainty, trade restrictions and inequalities. He credited CPEC with increasing Pakistan’s energy supplies and plugging critical infrastructure gaps and said that its next phase would focus on socio-economic uplift, poverty alleviation, agricultural cooperation and industrial development. During the visit, the two countries embarked on a new phase of CPEC by signing MOUs on the first SEZ and socio-economic development. The also signed a Memorandum of Understanding on commencing the second phase of Free Trade Agreement (FTA). The first phase of FTA had been launched in 2007, resulting in growing trade gap in China’s favour. The original plan to operationalize the second phase in January 2014 could not be implemented because of differences between the positions of the two countries. Pakistan’s trade deficit with China last year stood at $9.7 billion, with Chinese exports of $11.45 billion and Pak exports of $1.74 billion. According to Pak media reports, China has agreed to open up 90% of its market to Pakistani exports during the second phase to redress the trade imbalance. However, the real impact of the second phase will be visible only in the coming years. Pak media reports also stated that during his meeting with Prime Minster Imran Khan, President Xi Jinping reiterated China’s unwavering support to Pakistan’s sovereignty and territorial integrity.
Prime Minster Imran Khan visited Iran and had a meeting with President Hassan Rouhani on April 22, within days of the terror attack in Baluchistan that killed, inter alia, some Pak navy personnel, leading to a call by Foreign Minister Qureshi on Iran and Afghanistan to take action against the terror groups behind the attack. In a joint press conference with the Iranian President, Imran Khan said that the most important agenda item of his visit was the issue of terrorism as it could increase differences between the two countries. He claimed that for the first time, the current government was dismantling militant groups across Pakistan. Referring to the above mentioned terror attack in Baluchistan, he added that he understood that Iran had also suffered terror attacks by groups operating within Pakistan and stressed that the issues needed to be resolved before they pushed the two countries apart. He suggested that the security officials of both the countries should sit together to build trust and ensure that both countries did not allow any terrorist activity from their soil. He also raked up the Kashmir issue. President Rouhani noted that the two countries had witnessed some tensions in the border areas in the recent past as a result of acts of terror and added that during the talks, they had reaffirmed their commitment to peace and security and emphasized that no third country should be allowed to harm the brotherly relations between the two countries. He said that Iran was interested in establishing links between Gwadar and Chabahar ports to strengthen commercial relations. He also expressed Iran’s willingness to meet Pakistan’s oil and gas requirements and increase export of electricity to Pakistan. Radio Pakistan claimed that the two countries had agreed to set up a Joint Rapid Reaction Force to guard the common borders. However, this does not find a mention in the joint statement issued at the end of the visit. The joint statement contains, inter alia, the following paragraph: “Both sides highlighted the need to resolve the issue of Jammu and Kashmir through dialogue and peaceful means based on the will of the people of that region and in line with the resolutions of the United Nations Security Council.”
May 10, 2019