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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: 083 - (26/02/13)

Summary: The PPP government is doing what it can to hold the Pakistani economy together until the elections, but without any serious long term strategy to confront the multiple crises haunting Pakistan. Zardari has finally even agreed to hand Gwadar port to the Chinese, something that Islamabad had long resisted doing.

After the PPP the deluge
By mid-February Pakistan’s foreign exchange reserves were down to just over US$13 billion, down US$350 million in just a week. The downward trend in foreign currency reserves therefore continues, worsened by a rare decline in the remittances of Pakistani workers abroad, which in January declined to US$1.089 billion from US$1.11 billion in January 2012. This rapid erosion of foreign exchange reserves seems to promise a major crisis for just after the forthcoming parliamentary elections.

The other chronic illness of the Pakistani economy, power shortages, also promise to get worse soon, as Pakistan State Oil is on the verge of bankruptcy because of a liquidity crisis, and will be forced to cut sales on credit to Pakistan state agencies, a development which will in turn lead to a reduction in power supply and more blackouts. Pakistan State oil is owed by electricity companies US$1.5 billion, while having debts to suppliers for US$1.23 billion.

China always ready to give a helping hand, and Iran too
On the diplomatic front, a major step has been taken by Islamabad in formally giving China the contract for operating the Gwadar port; this is a major concession to China, as Bejing has long sought control of this port to facilitate its trading operations. Reportedly, President Musharraf had decided not to give control of Gwadar to a Chinese state company in order not to upset Washington, despite the major role played by the Chinese in funding the construction of Gwadar. Although for the moment being there is no plan to open a Chinese naval base in Gwadar, the Indian government is expressing concern that this might eventually happen.

Perhaps the Gwadar move can be seen as a sign of Pakistan’s economic despair; another sign is Islamabad’s determination to move forward with the deal over the construction of a US$1.5 billion gas pipeline with Iran. Aside the fact that Washington is going to be very displeased at this development too, it is also a risky investment as nobody knows how the nuclear crisis with Iran will end. Observers believe that the deal is an expedient of the PPP-led government to reassure voters that something is being done about resolving the energy crisis, while there is little appetite in Pakistan for any action which would alienate Washington, whose cash is needed now more than ever.

PPP bets on Punjab, pundits bet on PML-N
The Zardari government is also under fire because of the terrorist attack in Quetta, targeting the Hazara minority, which caused a slaughter. There are allegations that the intelligence services had some information about the forthcoming attack, but did not manage to pre-empt it. In reality, these indiscriminate terrorist attacks are difficult to prevent, but in an electoral campaign everything is licit to gain some ground with the voters, so the opposition is lambasting the government. The PPP does not appear to have given up fighting the elections, knowing that much of the vote is bought anyway and that its generous expenditure in the last year or so might bring some reward in the villages. In particular, the PPP hope to gain ground in Punjab, where the provincial government is run by the opposition PML-N and there the PPP can try to present itself as the opposition; the gap between the two main parties in terms of popular vote in the previous elections had been very modest, but the distribution of the vote was such that the PML-N won many more seats in Punjab than the PPP. The political pundits however seem certain that the PPP will lose, as illustrated by a wave of defections of members of parliament and provincial assemblies to the PML-N.

Forecast 2013
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 in terms of corruption, is hardly better than the PPP.

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 expert’s’ 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.

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.

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 4.3% forecast 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 the money instead of making sure that efficient power plants were being installed.

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 no 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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