Pakistan is facing a severe economic crisis, with many citizens finding it difficult to make ends meet. Here, men in Peshawar demonstrate against a surge in fuel prices in June 2022.

Pakistan turns 75
Islamabad has serious issues

Seventy-five years ago, Pakistan emerged, along with India, from the British Raj. A country with potential – were it not for the ongoing tensions with India and many home-grown economic problems. Haroon Janjua reports from Islamabad

As Pakistan marks 75 years of independence this weekend, Islamabad has not planned any special events, aside from a flag-raising ceremony, a fireworks display in the capital and the introduction of a new 75 rupee (€0.34/$0.35) note.

However, 75 rupees doesn't buy what it used to. Inflation data from July released last week showed Pakistan's Consumer Price Index surged nearly 25% compared to last year, with consumers struggling to bear the soaring costs of essentials like food and energy.

The economic turmoil is putting heavy pressure on Pakistan's new government, which is currently in long-running negotiations with the International Monetary Fund on a bailout deal to stave off a disastrous default on foreign debt.

Cycle of economic malaise

Husain Haqqani, a former Pakistani ambassador to the United States, explained that Pakistan's economic dysfunction is rooted in deep structural problems dating back decades. "The common explanation for Pakistan's relatively uninspiring economic performance is that the country's riches are regularly plundered by corrupt politicians and bureaucrats, making it seem poorer than it is," said Haqqani. But he said that Pakistan's economic trouble goes deeper than mere corruption.

Pakistan remains a net importer of goods and services, while its industrialisation has not expanded sufficiently to close the gap. The ratio between tax collection and GDP as well as between exports and GDP for Pakistan is also among the lowest in the world. This means the government faces a persistent shortage of revenue and the country a perennial shortage of foreign exchange.

Pakistan's Prime Minister Shehbaz Sharif (photo: AFP/Getty Images)
Deep economic woes: still a net importer of goods and services, Pakistan's industrialisation has not expanded sufficiently to close the gap. The country's ratios for tax collection versus GDP and exports versus GDP are among the lowest in the world – the government in Islamabad faces a persistent shortage of revenue and Pakistan as a whole a perennial shortage of foreign exchange. Deep in debt relief negotiations with the IMF, Imran Khan's successor Shehbaz Sharif removed fuel subsidies in a bid to increase public revenue. Sharif's detractors accused him of selling out ordinary Pakistanis to the benefit of foreign creditors

"Successive Pakistani leaders made the choice of depending on foreign aid while building military capacity, ignoring the fundamentals of economics," said Haqqani, currently director for South and Central Asia at the Hudson Institute, a think tank in Washington, D.C.

However, it wasn't always like this. According to renowned economist Kaiser Bengali, Pakistan pursued robust development and created a vast amount of economic assets in the years following independence in 1947.

Bengali revealed that after Pakistan opened more to foreign interests around the year 2000, government spending and imports began to far exceed tax revenues and exports, with the gap made up by foreign loans. "Today, loans are contracted only to repay past loans – none for any development projects," he said.

Ongoing political instability

Less government revenue means shrinking resources for public services, which in turn contributes to political instability. In April, former premier Imran Khan was ousted from office in a no-confidence vote, having been blamed for mismanaging the economy over his three years in office. Khan claimed he was "overthrown" by a "US-backed, imported government." His supporters took to the streets in protest, and Khan remains a destabilising political force.

Khan's successor, Shehbaz Sharif, has faced an uphill battle with a fractured polity and floundering economy. As the Sharif government negotiates with the IMF on debt relief, it has removed fuel subsidies in a bid to increase public revenue. Sharif's detractors have accused him of selling out ordinary Pakistanis to the benefit of foreign creditors.

"Pakistan's political instability has left the country's economic future uncertain. Growing political polarisation and protests by Khan have encumbered governance, especially the hard decisions to fulfil the IMF bailout conditions," Raza Rumi, a political commentator, said in May.

Military parade in Islamabad, Pakistan in March 2022 (photo: Xinhua/picture-alliance)
A skewed civil-military relationship: former Pakistani diplomat Maleeha Lodhi believes political incontinuity has "contributed greatly" to Pakistan's problems as the country has "alternated between military rule and civilian governance in a cyclical pattern". The result: power asymmetry between elected and unelected institutions. "Governance challenges are also the result of blowback from the country's protracted geopolitical engagements during the Cold War and beyond, the impact of great power rivalries and the fault lines of geopolitics in the region," Lodhi added

Military always in the background

For decades, Pakistan's military has been a potent political and economic force. It holds considerable sway over civilian institutions, contributing to public perceptions of government corruption.

Opponents of Khan have accused the former premier of being a "puppet" of the army, with some liberal analysts saying the military rigged the 2018 general election to bring Khan's Pakistan Tehreek-e-Insaf party to power, a claim both the army and Khan have denied.

"Imran Khan is the civilian face of a military state," Tauseef Ahmed Khan, a Karachi-based political analyst, asserted in a 2021 interview.

Maleeha Lodhi, a former Pakistani diplomat, believes that political incontinuity has "contributed greatly" to Pakistan's problems as the country has "alternated between military rule and civilian governance in a cyclical pattern."

"It has also left a legacy of a power asymmetry between elected and unelected institutions," she added.

"Governance challenges are also the result of blowback from the country's protracted geopolitical engagements during the Cold War and beyond, the impact of great power rivalries and the fault lines of geopolitics in the region," Lodhi said.

Pakistan's former prime minister Imran Khan, ousted by a vote of no confidence earlier this year (photo: AP Photo/picture-alliance)
The civilian face of a military state? In April 2022, former premier Imran Khan was ousted from office in a no-confidence vote, having been blamed for mismanaging the economy over his three years in office. Opponents of Khan accused the former premier of being a "puppet" of the army, with some liberal analysts saying the military rigged the 2018 general election to bring Khan's Pakistan Tehreek-e-Insaf party to power, a claim both the army and the former PM have denied. Khan claimed he was "overthrown" by a "U.S.-backed, imported government". His supporters took to the streets in protest, and Khan remains a destabilising political force

Analyst Haqqani said "four military dictatorships and behind-the-scenes political manoeuvring by the army has created a skewed civil-military relationship."

"Pakistan's army leadership has never trusted civilian politicians to act in what they view to be 'the country's interests' and so have repeatedly intervened to remove civilian leaders, through coups, both judicial and military," he added.

Focus on arch-rival India

Since 1947, when Pakistan became independent after the dissolution of the British Raj and split off, Islamabad's foreign policy has been focused on its archrival, India.

"Pakistan's foreign policy, and diplomacy has been driven by an ideology-based paradigm, which has centred on parity with its larger neighbour," said Haqqani. "Relations with the U.S. during the Cold War, with China, and even with countries in the larger Muslim world have focused on the India factor, instead of ensuring national security and fostering economic development," he added.

This rivalry is also reflected domestically, as Pakistanis point out that their government seems less interested in celebrating independence from the British crown than India, where extensive preparations for the anniversary have gone on for months.

"This year it seems that there is very little enthusiasm for Independence Day celebrations," commented Islamabad resident Osama Malik. "I remember the 50th anniversary celebration. The government had invited multiple singers and musicians and arranged a show right in front of parliament. Many events were held in schools across Islamabad."

Although Pakistan has made great strides in development since 1947, the next 75 years look to be considerably more challenging. Besides economic and political instability, Pakistan is also facing burgeoning population growth combined with the increasingly dire consequences of climate change.

"Pakistan has made progress in many areas. That includes pulling people out of extreme poverty and building a significant industrial and agricultural base. Its much larger middle class now contributes in many ways to the country's progress," said former diplomat Lodhi. "But major challenges persist. Many overlap and have been reinforcing each other in a vicious cycle over the decades."

"Fear of survival has engendered corruption and dynastic rule within civilian political parties and prevented the rise of newer parties … making the country more politically and socially unstable," she added.

Farzana Bari, a rights activist and academic, said that Pakistan's ruling classes have served the "colonial interests of the ruling elite" over decades, cutting out marginalised communities and the larger public. "Successive governments have not spent on human resources, primarily education and health," she said, adding that there are hopes for Pakistani youth to create a stronger civil society and bring the country on a "progressive path."

To move forward, analyst Haqqani said Pakistanis will "need to move beyond conspiracy theories and ideological narratives, and instead seek to focus attention on building Pakistan's human capital, economic potential, and political institutions."

Haroon Janjua

© Deutsche Welle 2022

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