It is official, Imran Khan has finally been inaugurated in Islamabad as Pakistan’s 22nd Prime Minister. Imran Khan has been sworn in as the new Prime Minister of Pakistan after a vote at the country’s National Assembly. Khan’s Pakistan Tehreek-e-Insaf (PTI) party won the most seats in July’s elections, after two decades since first entering the chaotic world of Pakistani politics.
As former national cricket captain, Imran Khan entered politics in the late 1990s and gained the love of millions as one of the greatest cricketers. Winning Pakistan’s first Cricket World Cup as Captain in 1992, there was always a ‘soft spot’ for him. However, there is a very different chapter opened in the life of Imran Khan and indeed the life for the ordinary Pakistani today.
Imran Khan has vowed to create a “Naya (New) Pakistan” and has taken this slogan to inspire the people, who have had little to be motivated by previous governments. He ran on an anti-corruption platform, that pledged to improve the lives of the country’s poor with an ‘Islamic welfare state’. He also vowed to build world class hospitals and academic institutions.
After the celebrations are done, the fireworks stop banging and the desserts are eaten, there are a multitude of problems which the Captain will have to deal with. The first major problem that needs immediate attention, is the dire and frightening state of Pakistan’s economy.
Pakistan has one of the world’s lowest number of taxpayers as a percentage of the population. Only 1% of the approximately 200 million population pay tax.
The currency of Pakistan has been devalued four times in just eight months this year alone, which marks its position as the worst performing currency in Asia.
Pakistan has been placed on the ‘grey list’ meaning that making foreign transactions are more complicated and expensive. It means that the financial system has been designated as posing a risk to the international financial system because of “strategic deficiencies” in its ability to prevent terror financing and money laundering.
The $60 billion plan, known as the China-Pakistan Economic Corridor (CPEC), has been celebrated by both countries as a long-term investment, aimed at increasing trade and provide thousands of jobs to develop projects across Pakistan. Indeed Imran Khan has supported this initiative, “With pragmatic cooperation and joint efforts of the people of Pakistan and China, the corridor project has brought about many positive changes to multiple areas of Pakistan’s economy and society for last five years”.
Pakistan’s external debt increased to $92 billion in the first quarter of 2018, from $89 billion in the fourth quarter of 2017.
Pakistan’s business environment rankings are poor, ranking 147 out of 190 in the World Bank’s latest Ease of Doing Business Ranking.
Pakistan’s current account deficit stands at $18 billion, while its foreign-currency reserves are just $10.1 billion, enough to cover two months of imports. Just days after the election, China gave Pakistan a $2 billion loan to help shore up its finances, following $1 billion given by Chinese banks in April.
Pakistan is preparing to seek up to $12bn (£9bn) from the International Monetary Fund (IMF), in a bailout that could pause Imran Khan’s public spending pledges. The bailout from the IMF would mark the biggest in the country’s history and the 13th since the 1980s.
“There’s no rationale for IMF tax dollars—and associated with that, American dollars that are part of the IMF funding—for those to go to bail out Chinese bondholders or China itself” warned U.S. Secretary of State Mike Pompeo about a potential IMF bailout of Pakistan. Pompeo’s remarks captured the concerns of Americans across the political spectrum about China’s increasing role throughout Asia. However it also reflected the United States’ exhaustion with Pakistan.
Pakistan’s reserves have dropped at the fastest pace in Asia to $9.1 billion. Low reserves mean that Pakistan has less funds to pay for much-needed imports to keep economic growth going and for the central bank to maintain currency stability.
Since CPEC launched in 2013, Chinese firms have finalized $19 billion in investments in Pakistan, a significant injection of capital that has already improved the country’s electrical system and stimulate growth. However all this comes at a cost which Pakistan needs to meet.
The Trump administration announced earlier this year that it would suspend nearly all security aid to Pakistan. The decision of freezing $1.3 billion in annual aid, came after Trump used his first tweet of 2018 to complain that Pakistan had “given us nothing but lies & deceit” and accused it of providing “safe haven to the terrorists we hunt in Afghanistan.”
Imran Khan is not governing a country that has a sound infrastructure, or a decent track record of creating jobs, strong public sector investment or supporting the development of the private sector. This is a nation that has a long and painful history of mismanagement and politicians who have laundered huge sums of money into foreign banks, for their own disposal.
The Sharif and Bhutto political dynasties left their shambolic terms, with an economy massacred by their greed and incompetence.
With a looming IMF arrangement to be agreed, Imran Khan needs to take note of the long history of IMF loan arrangements , which has crippled economic progress. Successive IMF programmes have required Pakistan to adopt more withholding taxes (never to be refunded), surcharges and levies on essential goods such as oil and electricity, even though these measures hurt employment and investment growth. Pakistan is also fluent with the implications of missing its fiscal targets agreements, which usually mean quarterly mini-budgets drafted, which often include new taxes on school fees, bank transactions, Internet access, and so forth.
IMF loans are not saviour loans, they come with conditions which completely take away the economic sovereignty of a nation.
Also, Chinese investment seems too good to be true. The generosity of China seems to have reached new heights, by releasing vast sums of money for projects including roads, ports, energy plants and business parks, which sounds amazing. However like anything, ‘the devil is in the detail’. One Pakistani concession guarantees Chinese power plants annual returns of up to 34 percent for 30 years, all backed by the government. By comparison, Pakistan’s 10-year government bond yields have fluctuated between 8 and 9 percent over the past year.
China is lending billions to Pakistan in U.S. dollars, so Pakistan must run an increasingly large surplus to repay its loans. Pakistan has been unable to export enough to generate a trade surplus and has rapidly been depleting its foreign-exchange reserves. Therefore, the IMF has become the body that is the best option for this debt trap.
Economic dependency has been a running feature in the history of Pakistan. The management of Pakistan’s huge resources have not been harnessed by corrupt ruling parties. It is a known fact that Pakistan is one of the richest countries of the world, in terms of natural resources. Pakistan has been gifted with gigantic reserves of coal, gas, gemstones, copper and gold. However, other countries have benefitted from the wealth of Pakistan, rather than the people who live in the same country. Other resources Pakistan has been gifted with include oil, iron, titanium and aluminium, however none of this has had any positive impact on Pakistan prosperity. An example is the mineral rich Baluchistan area of Pakistan that has the potential to generate billions of dollars for investment in Pakistan, which has instead been eyed up by China’s ‘Silk Road’ firms so they can reap the fruits.
Imran Khan has a challenge indeed to inject independence and inspiration into the Pakistani economy, however this will never take place by giving other nations power, at the expense of the people of Pakistan. The economy of Pakistan is a substantial problem and the promise to improve it, was a fundamental reason why PTI was given a mandate by the people of Pakistan. The success of this, either will bring immense praise or sharp criticism, which the citizens of Pakistan are well known and experienced to give.