ISLAMABAD — Pakistan’s Prime Minister Nawaz Sharif is trying hard to put on a brave face, even as his nuclearized country’s opposition politicians agitate increasingly loudly for his resignation.
A series of opposition-sponsored street rallies calling for the prime minister to quit may have done little immediately to weaken Sharif’s government, which rode to power almost 30 months ago on the back of a landslide victory.
But Sharif’s vulnerability is growing: At its root is not only in his inability to outwit his political foes, but more important, his failure to improve Pakistan’s grim economic outlook.
Since May ’98, when Pakistan first conducted its nuclear tests, the country has faced a series of pressures from the West, led by the Group of Seven industrialized countries, demanding that it accept international nuclear safeguards. The G7’s initial reaction to the nuclear tests took the form of punitive economic sanctions through the suspension of all international multilateral and Western bilateral loans to Pakistan.
In the months that followed the tests, the so called “strategic dialogue” with the West, led by the United States, allowed Pakistan to seek restructuring of its foreign debt, with the aim of lowering its future repayments. But in the fallout from the nuclear tests, investor confidence, which was already battered, weakened alarmingly. Pakistan’s decision to freeze almost $11 billion deposited in onshore foreign-currency accounts, just hours after the nuclear tests, has further undermined confidence.
Can Sharif resurrect himself from Pakistan’s worsening economic malaise? While his critics continue, pointedly, to ask that question, so far there have been no clear answers. The economy’s vital indicators, such as exports, continue to stagger, despite official incentives designed to reverse the trend. Moreover, an IMF loan program worth $1.56 billion, which was agreed to with Pakistan last year, is also on the verge of difficulties. The fund is expected to lend some $280 million later this month in the form of yet another tranche from the loan program.
But analysts say that there’s nothing to suggest that the fund’s assistance will continue in years to come, especially if Pakistan fails to meet some of the International Monetary Fund’s tough conditions — such as reforming its tax system. Sharif, a former industrialist turned politician, has been criticized for his failure to improve Pakistan’s tax revenues, which last year fell almost 18 percent behind the government’s target. Sharif’s critics say that his biggest shortcoming has been his failure to get tough with businessmen, even if that means jailing some for tax evasion.
Many businessmen supported Sharif in the last elections and therefore appear to be immune from prosecution, so far. On other vital fronts, the Sharif government’s handling of the controversy surrounding Pakistan’s private power projects has had a devastating effect on foreign-investor sentiment. Those private power companies were set up under the tenure of Benazir Bhutto, Sharif’s immediate predecessor. For well over a year after he came to power, the government’s so-called “accountability” cell — the main anticorruption agency — investigated the accounts of the power companies on the grounds that they had bribed officials during the Bhutto regime’s tenure to seek favors, such as exceptionally high tariffs.
In the end, Sharif’s government had to retreat under pressure from international agencies, including the World Bank, when it failed to find credible evidence to support the corruption allegations. However, many investors say that the case has caused a wave of pessimism among foreign investors, who may not return to Pakistan in large numbers for months or even years to come. Despite these challenges, the one remaining saving grace for the Pakistani economy is the performance of the country’s agriculture sector. For more than half of Pakistan’s population, agriculture provides the main source of subsistence. But Sharif has had his problems in this sphere, too.
Last year, a widespread infestation of the cotton crop triggered a crash in agricultural output and pulled down Pakistan’s overall economic-growth rates. Sharif’s critics were then quick to denounce his government for its failure in undertaking key reforms, such as ordering a clampdown on the widespread sale of adulterated pesticides and chemical fertilizers across the country. Pakistan’s economic vulnerability, and the challenges related to that, have created a difficult environment for Sharif’s government.
It’s clearly a situation where political survival in the traditional sense — the ability to ward off critics, does not necessarily translate into the ability to run a stable government. The implications of an economic breakdown for Pakistan’s future are manifold.
Some of the country’s toughest hawks, many of whom supported last year’s nuclear tests, have argued fiercely in favor of maintaining a strong nuclear deterrence, citing economic factors as well as other reasons. They argue that a nuclear deterrence would be cost-effective, a good substitute for the relatively more expensive conventional defense stance. Pakistan’s economic weaknesses are bound to strengthen that point of view.
The other serious implication is the possibility of growing social turmoil in the wake of an economic breakdown. With indicators such as unemployment and inflation on the rise, especially for the very poorest, street unrest is inevitable. A country with a population of 138 million, the second-largest state in south Asia, could find itself right in the center of the international spotlight, if its economic downturn leads to internal instability.
Sharif may opt to continue with the “status quo approach” that he apparently favors in tackling some of Pakistan’s most pressing economic problems. But such soft tactics are bound to boomerang: There will soon be no choice but to replace complacency with unprecedented activism and set about the launching of a national salvage operation.
Farhan Bokhari is a freelance journalist who reports from the Pakistani capital for The Japan Times and leading European papers.
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