Breaking Pakistan’s dirty IMF habit

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Pakistan’s recent US$3 billion Stand-By Arrangement with the International Monetary Fund (IMF) has provided much-needed financial relief alongside the financial aid and investment from several strategic partners, including Saudi Arabia, the United Arab Emirates and China.

These arrangements could play a significant role in addressing pressing economic crises. While these injections offer temporary fiscal respite, Pakistan faces more complex economic and political challenges. Pakistan is experiencing low economic growth at -0.5%, coupled with 29.6% inflation and 8% unemployment. 

Additionally, the 22% interest rate has severely damaged the business environment without achieving its intended objective of controlling inflation. Pakistan also struggles with low foreign exchange reserves, with the State Bank of Pakistan holding just $8.2 billion. Over $25 billion is needed to manage debt requirements, yet the tax revenue in FY2024 was only $32 billion.

Pakistan remains fragile due to political instability and security issues. Pakistan is heading towards a general election in next three months, potentially exposing a new government to these challenges. There is speculation that the election could be delayed, adding to Pakistan’s political instability that is estimated to cost the economy up to 3% of GDP per year.

Overcoming these structural economic and political issues and breaking the cycle of IMF dependency requires a holistic approach to unleash Pakistan’s growth potential and address the root causes of these challenges through critical reforms.

Pakistan must foster private sector-led growth through deregulation. Removing unnecessary bureaucratic hurdles, streamlining regulatory processes, and easing the burden of compliance will enable businesses to thrive. Regulatory frictions are estimated to cost Pakistan 39% of GDP. 

A business-friendly climate is required to attract domestic and foreign investments, spur innovation, create jobs, and grow the economy. Businesses demand both policy certainty and simplified regulatory requirements, especially regarding documentation such as No Objection Certificates.

Pakistan should also transition from a traditional bricks-and-mortar growth model to a knowledge-based economy to support sustained development. Investing in education, research, and development will nurture a skilled workforce and foster technological advancements. 

Rather than establishing professor-less universities, both the federal and provincial governments should prioritize basic education. Embracing digitalization and emerging technologies will drive productivity, efficiency, and global competitiveness, paving the way for inclusive and sustainable growth.

The government must streamline its footprint, estimated at 67% of the economy, and expedite the privatization of state-owned enterprises to improve economic efficiency and reduce the burden on the national exchequer. 

A leaner and more efficient public sector will free up resources for targeted investments in crucial sectors, while privatization will infuse dynamism and competition in previously monopolized industries, increasing productivity and profitability.

Pakistan must also improve tax compliance and encourage investment by simplifying the tax system, reducing the compliance burden on businesses, and ensuring a level playing field. 

Rather than relying solely on increasing tax rates, the government should focus on adopting a fair and transparent taxation structure and eliminating the distinction between filer and non-filer taxpayers, making filing tax returns compulsory. The tax imposed on cash withdrawals is counterproductive and should be eliminated.

Pakistan should foster stability and growth through a Charter of Prosperity, encompassing the Charter of Power, Charter of Democracy, and Charter of Economy. Continuous political strikes and marches organized by interest groups and political parties have led to significant economic losses. 

Pakistan ranks in the 5th percentile for political stability compared to the 30th percentile for South Asia. A stable political environment is essential to attract investment, allow businesses to grow, and provide space for people to think and contribute to the growth of the economy.

The Charter of Power requires a shared understanding and commitment to follow the rules and work within defined boundaries. It will help streamline power struggles between various stakeholders and power circles. 

The Charter of Democracy will prioritize political stability, institutional reforms, and collaboration among political parties for a unified economic agenda. Meanwhile, the Charter of Economy will outline a cohesive economic vision agreed upon by all stakeholders, emphasizing long-term planning, investment promotion, and export diversification.

Deregulating the economy, embracing the knowledge economy, streamlining the government, simplifying the tax system, and fostering political stability through a Charter of Prosperity could pave the way for lasting prosperity and sustainable development. 

Alongside these reforms, the government should also revisit tax expenditures, ill-devised subsidies, and non-developmental current expenditures. With strategic reforms and collaborative efforts, Pakistan can overcome its economic challenges and independently create a brighter future for its citizens.

Saima Nawaz is Assistant Professor at COMSATS Institute of Information Technology, Islamabad.

This article was originally published by East Asia Forum and is republished under a Creative Commons license.

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Taliban finding new ways to stoke regional tensions

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Two years after the United States withdrew from Afghanistan, countries around the world have begun normalizing ties with the Taliban. Central Asian states are no exception.

But amid fears that the Afghan rulers could destabilize the region or create a water crisis, and with China and Russia heavily influencing regional security, Central Asian countries are proceeding cautiously.

Kazakhstan, the largest country in Central Asia, insists that recognition of the Afghan group is off the table. In 2005, the country’s Supreme Court added the Taliban to its list of terrorist organizations. But this designation hasn’t prevented the energy-rich country from strengthening trade cooperation with the “graveyard of empires.” 

Bilateral trade between Afghanistan and Kazakhstan reached US$1 billion in 2022 and Kazakh authorities are reportedly looking to increase this to $3 billion “soon.”

Afghanistan buys about 60% of its imported flour from Kazakh producers; earlier this month, the two sides struck $200 million in new commercial deals, mainly commitments by Kazakhstan to supply Afghanistan with even more of the essential food.

Astana also views Afghanistan as an important transit country, as evidenced by the fact that Kazakhstan recently sent several trucks on a new trade route to Pakistan through Afghanistan.

Neighboring Uzbekistan has similar geo-economic goals. On July 18, representatives from Uzbekistan, Pakistan and Afghanistan signed a tripartite agreement to connect the countries by rail.

Uzbekistan and Kazakhstan are looking east to Pakistan as a significant export destination for their goods, a strategy that could help reduce the former Soviet republics’ economic and political dependence on Russia. Afghanistan’s importance as a trade route to South Asia is a key reason why these countries, along with Kyrgyzstan, want to normalize ties with the Taliban. 

But doing business with the fundamentalist group won’t be easy, especially for Uzbekistan. One reason is water.

A colossal canal being built by the Taliban could significantly reduce the flow of a regionally-important river, the Amu Darya. This is of great concern to both Uzbekistan and Turkmenistan, which are located downstream.

The Qosh Tepa Canal threatens to create a regional water crisis. Image: Youtube Screengrab.

If the Taliban completes the Qosh Tepa Canal, which is intended to turn Afghanistan’s northern desert into farmland, Uzbek and Turkmen farmers could suffer. There are even fears that the Qosh Tepa could reduce Uzbekistan’s water reserves and cause a crippling drought.

Despite these concerns, Uzbek authorities are unlikely to jeopardize their relations with the Taliban over the project. Policymakers in Tashkent know that if they attempt to prevent the construction of the canal, the Taliban could stop Uzbekistan from using a railway route to Pakistan that enables access to seaports in South Asia. 

Tajikistan’s position may be the most difficult to navigate. Dushanbe considers Taliban-ruled Afghanistan to be a threat to Tajik national security, which is why it supports anti-Taliban forces in Afghanistan and abroad.

More importantly, Tajikistan has joined Uzbekistan and Turkmenistan in signing a statement that stresses “the priority importance of the rational use of the water resources of the Amu Darya river.” It’s a clear message to the Taliban that Tajikistan doesn’t approve of the group’s plans to build the controversial canal. 

Central Asian states seem to share Washington’s vision of a post-America Afghanistan, where an inclusive, united, sovereign and self-reliant country “respects the rights of its population, including women and girls, and is at peace with itself and its neighbors.”

The US, Tajikistan, Turkmenistan, Uzbekistan, Kazakhstan and Kyrgyzstan insist that Afghanistan shouldn’t be used as “a base for hosting, financing, or exporting terrorism and violent extremism to other countries.”

Thus, even though US troops are no longer on the ground in Afghanistan, Central Asian countries are acting as Washington’s partners in their approach to the Taliban government. 

Pro-Kremlin media in the region are trying to upset this balance. Mars Sariev, a Kyrgyz political scientist, told a Russia-language newspaper published in Kyrgyzstan that the US will eventually use the Taliban to destabilize Central Asia and weaken Russian and Chinese positions in the strategically important region. 

Taliban representatives meet with Chinese officials in Tianjin. In the center are Taliban co-founder Mullah Baladar and Foreign Minister Wang Yi. Photo: Chinese Foreign Ministry

“In Afghanistan, all these radical movements are controlled by Western structures, as well as the Taliban,” Sariev said earlier this month. “Therefore, the threat in northern Afghanistan against our republics is now growing.”

One thing is certain: As the newest iteration of the Taliban government turns two, Central Asian states will continue treading carefully, coordinating their Afghan policy not only with the US, but also with Russia and China.

Washington was able to wash its hands of the troubled country in August 2021. Afghanistan’s neighbors don’t have that luxury.

Nikola Mikovic is a political analyst in Serbia. His work focuses mostly on the foreign policies of Russia, Belarus, and Ukraine, with special attention on energy and pipeline politics. Twitter: @nikola_mikovic

Republished with the kind permission of Syndication Bureau.

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New plan to attract Muslim visitors

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PUBLISHED : 19 Aug 2023 at 04:57

New plan to attract Muslim visitors
People emerge from the arrival hall at Suvarnabhumi airport after disembarking from a Saudi Arabian Airlines flight from Jeddah via Riyadh on Feb 28, 2022. It was the first direct commercial flight from Saudi Arabia in 32 years, following the recent normalisation of diplomatic ties. (Photo: Varuth Hirunyatheb)

Thailand is aiming to become a top destination for Muslim tourists from other countries by 2027, according to deputy government spokeswoman Rachada Dhnadirek.

She said on Friday that Muslim tourists are one of the biggest targets for the country’s tourism sector due to their growing numbers and high purchasing power.

More than 3 million Muslim tourists visited the country last year, a massive jump when compared with 875,043 in 2017, she said, citing Department of Tourism (DoT) data, adding on average, a Muslim visitor stays for 13 days and spends about 6,000 baht per day.

To further promote the kingdom among Muslim tourists, the DoT has announced a five-year plan (2023–2027) to focus on improving the service quality of tourism operators to meet international standards, she said.

This includes introducing halal goods, services and activities that meet the needs of Muslim tourists and implementing technology to facilitate travellers, she said.

The DoT is working closely with related sectors to identify how to support Muslim visitors and promote Thailand as a Muslim-friendly tourist destination, she said.

This strategic plan is expected to help the country become one of the top destinations for Muslim tourists in the next five years, Ms Rachada said.

“The government sees the importance of opening for the Muslim tourism market,” she said. “We hope the policy can be carried on by the new government.”

According to the Mastercard-Crescentrating Global Muslim Travel Index 2023, Indonesia and Malaysia are tied for the number one spot, followed by Saudi Arabia, the United Arab Emirates and Turkey.

Meanwhile, Thailand has welcomed more than 16.472 million international tourists since Jan 1, bringing 689 billion baht for the country, according to the Tourism and Sports Ministry’s Economics Tourism and Sports Division.

The top five groups are from Malaysia (2,581,251), China (2,027,823), South Korea (982,328), India (947,431) and Russia (884,839), it said.

From Aug 7–13, the country welcomed 577,136 foreign tourists, with the number of Japanese and Indian tourists increasing by 84.36% and 22.54% from last week, respectively, it said.

For this week, the ministry estimates that the country will welcome about 570,000 international tourists with the majority of them from East Asia, South Asia and Southeast Asia.

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Pakistan: More than 100 arrested after churches burned

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People gather at a church building vandalized by protesters in Jaranwala, Pakistan August 16, 2023Reuters
By Carrie Davies & Derek Cai
in Islamabad and Singapore

More than 100 people have been arrested in an east Pakistan city after thousands of Muslims burned churches and vandalised homes.

The violence in Jaranwala was sparked by claims that two Christian men had torn pages from the Quran.

The historic Salvation Army Church was still smouldering on Thursday, one day after the riot.

The ruins have been surrounded with barbed wire as the situation remains tense.

Public gatherings have also been restricted for seven days in Faisalabad district, which includes Jaranwala.

The two men accused of damaging the Quran, Islam’s holy book, have not been arrested though they have been charged with blasphemy, which is punishable by death in Pakistan.

Even though Pakistan has yet to sentence anyone to death for blasphemy, a mere accusation can result in widespread riots, causing lynchings and killings.

Two years ago, a Sri Lankan man accused of blasphemy was killed by an enraged mob and had his body set on fire. In 2009, a mob burned down about 60 homes and killed six people in the Gorja district in Punjab, after accusing them of insulting Islam.

Pakistan inherited the blasphemy law from the British in the 19th century. In the 1980s, Islamabad introduced stiffer penalties, including the death sentence for insulting Islam.

Around 96% of Pakistan’s population is Muslim. Other countries, including Iran, Brunei, and Mauritania also impose capital punishment for insulting religion.

Religion-fuelled violence in Pakistan has risen since the country made blasphemy punishable by death, as it “bolsters violent behaviour,” Iftekharul Bashar, a researcher at the think-tank RSIS who focuses on political and religious violence in South Asia, told the BBC.

“The Pakistani society has experienced increased fragmentation, driven by widening economic disparities, leading to an upsurge in violence directed towards minority religious groups,” Mr Bashar said.

“The emergence of extremist and vigilante factions within Pakistan, some of which exhibit significant financial backing, also contributed to this trouble trend,” he added.

A local official told BBC Urdu that authorities received calls about protests and fires early Wednesday morning after reports of the two men allegedly desecrating the Quran, the holy book of Islam, circulated on social media.

Authorities said torn pages of the the sacred text with blasphemous content allegedly scribbled on them in red marker ink, were found near a Christian community.

The reports circulated around the city and on social media, sparking outrage among the Muslim community. The violence that ensued saw mobs attacking and looting private homes belonging to Christians.

Police told the BBC that the Christian’s possessions were pulled into the streets and set on fire.

Yassir Bhatti, a 31-year-old Christian, was one of those to flee their homes.

“They broke the windows, doors and took out fridges, sofas, chairs and other household items to pile them up in front of the Church to be burnt,” he told AFP news agency.

“They also burnt and desecrated Bibles, they were ruthless.”

Videos on social media show protesters destroying Christian buildings while police appear to watch on.

Amir Mir, the information minister for Punjab province, condemned the alleged blasphemy and said in a statement that thousands of police had been sent to the area, with dozens of people detained.

The mob was mostly made up of people from an Islamist political party called Tehreek-e-Labbaik Pakistan (TLP), a government source told Reuters. The TLP has denied any involvement.

Caretaker PM Anwar ul-Haq Kakar called for swift action against those responsible for the violence.

Pakistani bishop Azad Marshall, in the neighbouring city of Lahore, said the Christian community was “deeply pained and distressed” by the events.

“We cry out for justice and action from law enforcement and those who dispense justice, and the safety of all citizens to intervene immediately and assure us that our lives are valuable in our own homeland,” he posted on X, formerly known as Twitter.

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World trade tumbles into recession

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All major exporting nations showed steep year-on-year declines in shipments during June and July led by South Korea and India, which both fell by 16% during July and June, respectively. China and Taiwan registered year-on-year declines of 9.2% and 10.4% in July. Singapore’s July exports, moreover, fell 19.3% year over year, while Vietnam’s fell by 15%.

China’s July pullback drew attention from major media because of the tense political atmosphere surrounding its trade, but the Chinese data are unremarkable. As the above chart shows, China’s export performance was in line with the rest of East Asia and South Asia. The most prominent “re-shoring” venues – countries that supposedly offer an alternative to China’s enormous export machines fell even farther than China itself.

The shrinkage in exports occurred across all major markets. China publishes detailed export data earlier than most countries, and these show a downturn in all major destinations.

According to US data for June, the latest month available, total American imports fell by 9.9% year over year. The fall in China’s exports to the US is exactly in line with the overall shrinkage of US exports.

Part of the world export slump is due to lower prices. After the 2021-2022 burst of inflation, which peaked at a 19% year-on-year rise in export prices in May 2021, world export prices fell into deflation during the past three months. Overall, export prices showed a 5% decline as of May, according to the Netherlands Central Planning Bureau.

Consumer electronics, which boomed during the COVID lockdowns, were one of the most affected sectors. The semiconductor shortage of 2021-2022 has turned into a global glut, with substantial price discounting for computer chips.

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Imran Khan: Is his political future over now he is in jail?

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Former Pakistani Prime Minister Imran Khan speaks with Reuters during an interview, in Lahore, Pakistan March 17, 2023.Reuters
By Carrie Davies in Islamabad
BBC News

Imran Khan has been arrested for the second time in a matter of months, but this time the reaction looks very different. What could happen next?

There could not have been a starker contrast between 9 May and 5 August this year.

While Imran Khan’s first arrest led to protests in the streets from Peshawar to Karachi, with buildings burning and the army on the streets, Saturday night was no different from any other normal night in Pakistan.

Mr Khan is currently in prison, sentenced to three years for not declaring money gained by selling state gifts.

The sentence will lead to his disqualification before the upcoming elections.

His call for peaceful protests, urging people not to sit quietly in their homes, has – for now – has not worked. Why?

Ask government ministers and they will say that it is because people do not want to follow Imran Khan or his party, the PTI – unwilling to be associated with a group responsible for previous violence. That is not the message from Mr Khan’s supporters.

Imran Khan’s relationship with the establishment – shorthand in Pakistan for the politically-powerful military and intelligence agencies – soured more than a year ago.

Mr Khan was widely seen by analysts as having come to power with the help of the establishment and to have subsequently lost it when that relationship deteriorated.

Emasculated movement?

Since then, instead of waiting quietly until the next election, he has continued to criticise the army’s leadership. When army buildings were attacked following Mr Khan’s arrest in May, the military let it be known that they had a zero-tolerance approach to those they saw as responsible.

The subsequent crackdown has left Imran Khan’s party decimated.

His supporters were arrested in their thousands, and some will be tried in military courts, despite the outcry from human rights groups that the system should not be used for civilians.

Some in Pakistan’s media have told us that from late May – after TV station owners met the military – journalists were no longer allowed to say Mr Khan’s name, show his picture or even write his name on the tickertape.

Anecdotally, many previously vocal supporters told us that they had stopped posting about the PTI or its leader on social media, deleting their posts and no longer watching his public broadcasts, afraid of who might be watching them watching him.

The government has told the BBC that it does not arrest peaceful protesters. However, BBC Urdu journalists saw PTI supporters gathering outside Mr Khan’s house in Lahore on Saturday afternoon taken away by police. It is not clear if they were formally arrested.

Speaking on condition of anonymity, a contact in the police told the BBC that they had arrested about 100 PTI supporters. He said that the force had been told to stay vigilant and ensure no Imran Khan supporters began gathering.

“I think the response from the draconian crackdown has scared Khan supporters into submission,” says Michael Kugelman, director of the South Asia Institute at the Wilson Center think tank in Washington.

Police detain a supporter of former prime minister and head of opposition party Pakistan Tehreek-e-Insaf (PTI), after he was arrested following court orders that sentenced him to three years in prison in the Toshakhana case, in Peshawar, Pakistan, 05 August 2023

EPA

“I really think that the support base was unwilling to put itself at risk in the way we saw on 9 May.

“From one sense, the military has played this just right. They used these brutal tactics that really pre-empted a larger and more robust reaction from Khan’s support base.”

Imran Khan’s legal team have made it clear that they intend to appeal against the decision to jail him.

Test of the street and vote

In the course of the last few months, his lawyers have been able to repeatedly gain some temporary relief from different courts – delaying rather than stopping some of the more serious court cases.

It’s unclear if this will continue. Mr Khan saw his arrest dramatically overturned back in May, but in a very different political environment.

Imran Khan is one of several former Pakistani leaders who have ended up in the courts – Nawaz Sharif, Benazir Bhutto and the military dictator Pervez Musharraf, to name just a few in recent decades.

Mr Khan imprisoned several of his own political rivals while serving as prime minister.

Pakistan’s politicians will often say that the justice system is politically motivated against them, while justified against their opposition.

If Imran Khan remains disqualified from holding public office, there are big questions about what will happen to his party.

Mr Khan has told us previously that the PTI will live on and thrive, whether he is able to be elected or not. That is far from a certainty.

“The next big question, given the election, is how will the remaining leadership of the PTI try to mobilise?” says Mr Kugelman.

“Will they try to get their supporters out on the streets, will that be successful? It will be a good test.”

The PTI is a party created by and centred on Mr Khan. Even its logo printed on voting forms is the symbol of a cricket bat, a nod to Mr Khan’s previous career as an international cricketer.

Many of the senior political figures that surrounded Mr Khan earlier this year have since left his party. Others involved in his party are in hiding, evading arrest.

None of these suggests it would be easy for the party to run an effective political campaign.

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