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Key Economic Data 
  2004 2003 2002 Ranking(2004)
Millions of US $ 96,100 82,300 73,300 44
GNI per capita
 US $ 600 520 480 160
Ranking is given out of 208 nations - (data from the World Bank)

Books on Pakistan

Update No: 082 - (26/01/13)

Summary: the arrest of Prime Minister Ashraf plunged Pakistan in a political crisis, after the PPP and the Supreme Court had seemed to have reached a modus vivendi until the May elections. Political entrepreneurs of various persuasions sense the blood and are circling around the political establishment, looking for the chance of taking a bite or two from the sick giant. In the meanwhile, the Pakistani economy continues to drift.

Crisis deepens suddenly
Pakistan has not been a frequent source of good news in recent years, but January has been quite catastrophic for the country, to the point that some observers are beginning to think that what seemed unconceivable a few months ago, a new military takeover, is perhaps not so unrealistic anymore. Even some sections of the press are voicing their disappointment in democracy and their hope for a ‘benevolent dictator’.

The headlines were hit first and foremost by the news that the Supreme Court has ordered the arrest of Prime Minister Raja Pervaiz Ashraf and 14 others on the ground of corruption. This is the third Prime Minister in a row lost by the ruling PPP and the first one to be effectively arrested. Some PPP faithful will see a conspiracy against their party in this (not without some justification), but many Pakistanis see instead the demonstration that the political elite cannot find a prime minister clean enough to keep his job. Although these incidents might strengthen the opposition PML-N, in reality many Pakistanis are perfectly aware that that party too is hardly better than the PPP.

New players try to enter political market
The crisis of the political establishment is offering opportunities to political entrepreneurs who had been on the margins until now. One is Imran Khan, who is expected to do well in the forthcoming May polls, but whose popularity already seems to be peaking out. Another is Tahir Al Qadri, a moderate cleric who has been trying to kick-start a grass-roots anti-corruption government and advocates a government of technicians and professionals; he led the occupation by thousands of protesters of Islamabad’s centre, asking for the government to quit straight away. The fact that the armed forces leadership remained silent during the demonstrations suggests some sympathy for Qadri and his aims; perhaps rather than taking power directly, the army would find it more convenient to support a non-political civilian government. Qadri’s mobilisation effort was well funded and he openly praised the judiciary and the army, while bashing politicians. Qadri had also backed Musharraf’s coup in 1999. The malaise is felt at all levels of Pakistani society. Despite Pakistan’s massive investment in the security sector, Pakistanis feel more and more insecure. There are now hundreds of private security companies in Pakistan, employing 300,000 armed guards! It is another post-retirement career for army officers, most of these companies are owned by former generals.

IMF rubs salt on open wound
To add to the woes, the budget deficit reached, according to the International Monetary Fund 8.5% of gross domestic product in the last fiscal year, more than double the official target. The IMF also projects GDP growth at 3.5% for the current year, versus a 4.3% forecasted by Islamabad. Foreign currency reserves, one the most closely watched indicators of Pakistani economic trends, are declining. The IMF estimates that they reached US$10.8 billion in the last fiscal year. This grim economic picture is not what the government wants to hear in an election year, the more so since the main problem (insufficient power generation) is also in part the fault of the corruption of PPP politicians, who pocketed money instead of making sure that efficient power plants were being installed.

Kashmir offsets Afghanistan
On the foreign policy front the picture is more mixed. Pakistan is making progress on the Afghan front, where it seems to have convinced Washington that it can help in reaching a political settlement. The path is not entirely smooth, however, as Kabul is still not entirely convinced that the Pakistanis want to be really constructive. A major bone of contention is the possible release of Mullah Baradar, the Taliban leader held by the Pakistanis, whom Kabul wants free while Islamabad avoids giving clear answers. As if to offset some softening on Afghanistan, tension around Kashmir has been increasing again [see current INDIA report.] The Pakistani army might want to distract attention from Afghanistan, reassuring its jihadist allies that there will always be something going on to keep them busy.

Forecast 2013
There seems to be very little chance of the PPP hanging on to power in May. The question is whether the PML-N will be able to rule alone or with some minor allies, or will instead have to form a coalition with Imran Khan. In the latter case, coalition politics would become significantly more complicated. The new government will probably enjoy a short honeymoon, until it will somehow remind everybody how corrupt and incompetent it is too.

The IMF expects the budget deficit to reach 7-7.5% of GDP this year, a much higher figure than the Pakistani government estimates. The new government is unlikely to change much in that regard; Nawaz Sharif of the PML-N is not keener on raising taxes on the wealthy than the PPP has been. The new government however might afford to spend less, once the elections are out of the way. Foreign currency reserves will drop further to US$7.4 billion in the current year, ending in June. The key problem, which constrains economic growth no matter how cheap Pakistani labour might be, is power shortages. These cannot be resolved quickly, even if the plans approved by the current and future governments were implemented in a flawless way (and that would be a ‘first’). Hence the IMF’s pessimism is justified.

Pakistan is also trapped in a foreign policy environment, which it must be said, it has designed itself. The obvious avenue to faster economic growth is better relations with India, a huge potential market for Pakistani goods, and they are willing, but the various Islamist and jihadist lobbies nurtured for so many years by the Pakistani army would not buy better relations with India; the army itself, oversized for a country like Pakistan, has no interest in peace with India, as that would remove the justification for a quarter (at least) of the budget going to the armed forces. So it is not clear, who, what and how, is going to drag Pakistan out of its state of permanent crisis. Sadly, it has all the hallmarks of a ‘failing state’.


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