No End to Pakistan’s Economic Crisis. Can the New Finance Minister Change That?

Regardless of monetary influx, without genuine political will and public trust, the economy will remain trapped.

Regardless of the monetary influx, without genuine political will and public trust in leadership, the economy will remain trapped.

(Photo: Kamran Akhtar/ The Quint)

After initial hesitation, Arif Alvi, the President of Pakistan nominated by the Imran Khan-led Pakistan Tehreek-e-Insaaf (PTI), has finally called the National Assembly today, as scheduled. He got cold feet when threatened with subversion of the constitution. As I write, on 29 February, elected members are rolling into the Assembly hall for the swearing-in ceremony.

The Speaker and Deputy Speaker will be elected on 1 March, and the Leader of the House on 2 March. Thereafter, the cabinet will be formed.

The buzz is that the caretaker Finance Minister, Dr Shamshad Akhtar, will be allowed to continue for a few months by the new Shehbaz-led government.

The idea is to let her lead the negotiations for an Extended Fund Facility (EFF) with the International Monetary Fund (IMF). Whoever becomes Pakistan’s finance minister, she or he faces a downhill task.

What Will Be Pak Foreign Minister’s Plan of Action Amid Fund Crunch?

In its forthcoming budget, the new administration will issue lofty declarations regarding revenue generation and will designate substantial funds for industrialisation, agricultural development, poverty alleviation, welfare programs, and educational initiatives.

However, these proclamations will amount to mere fantasies. The reality is that there are no funds to execute any substantial schemes.

The primary task facing the new finance minister will be acquiring new loans to settle existing debts. Yet, it will quickly become apparent that securing fresh loans is improbable. Consequently, the minister's subsequent responsibility will involve liquidating national assets to repay outstanding debts. However, the scope for such actions is also restricted.

The banking sector is already predominantly under foreign ownership, comprising 80 percent foreign stakeholders. Similarly, the telecom sector is entirely owned by foreign entities. The recent announcement of the privatisation of Karachi port terminals underscores the government's intention to sell off national assets. Furthermore, a Saudi aviation team has completed inspections of all Pakistani airports, with plans to transfer ownership of four airports to foreign interests.

This trend suggests that more national assets may be put up for sale. Nevertheless, the pertinent question remains: Will there be any interested buyers?

Exodus of Businesses, Investors From Pakistan Leaves It at a Sorry State

Recently, Pakistan invited international bids for oil and gas exploration. Not one bid was received.

In 2023, Pakistan received Foreign Direct Investment (FDI) of only USD 1.7 billion. India gets that in a week. Several multinational corporations, unable to function in a restricted business environment, have closed shop and exited Pakistan in the last two years. Shell, Telenor, Eli Lilly and Fresenius Kabi, Merck, MSD, Johnson & Johnson, and countless others have left.

Businesses that remained in Pakistan have witnessed a significant decline in their investments, with the value diminishing by more than half, largely attributed to the sharp depreciation of the Pakistani rupee. Additionally, the repatriation of dividend income by foreign companies was suspended for a year.

Not only foreign companies, but even Pakistani investors opted to transfer their funds abroad rather than reinvesting them domestically.

According to a Dawn report, during the last two unproductive years, 20,000 Pakistani nationals have invested USD 10.6 billion in the UAE. Evidently, they harbour concerns about the safety of their investments within their own country.

During the same period (2022 and 2023), UAE, Qatar, and Saudi Arabia have invested USD 20 billion in India. Saudi Arabia has announced that in the next ten years, it will invest USD 100 billion in India – while UAE has committed USD 75 billion.

But why compare Pakistan with India? Even Pakistan does not compare itself with India any longer. Fifty-two years after its disintegration in 1971, it compares its economic progress with breakaway East Pakistan, now Bangladesh. That, too, makes a sorry comparison.

Depletion of US Aid

Pakistan’s per capita income is USD 1130 – while in Bangladesh it is USD 2064. During the pandemic, Pakistan managed a growth rate of 0.4 percent - while Bangladesh clocked 5.2 percent. Pakistan has foreign reserves of USD 21 billion – while Bangladesh has twice as much: USD 42 billion. The average life expectancy in Pakistan is 67 years. In Bangladesh, it is 72 years.

Years of corruption, crony capitalism, institutional weaknesses, and excessive defence spending have resulted in economic collapse.

Another major source of funds that has dried up is American aid. For six decades, during its 75 years of existence, Pakistan leveraged the Cold War rivalry between the USA and USSR to its advantage. It received significant compensation for doing America’s "dirty work”.

As long as the dollars continued to flow, the Pakistani government was prepared to offer its services. However, with the recent geopolitical realignment, the focus of US confrontation has shifted towards China. Consequently, the US now views India, rather than Pakistan, as a strategic ally. Pakistan has become a hindrance in this evolving landscape and will need to be defanged.

With no wars to fight, the military establishment’s (or the 'boots’) footprint in Pakistan’s politics and economy will increase. Firmly entrenched in services and industry, it wants to move into agriculture. They have asked for 100,000 acres of land in Punjab. Soon they will be running laundromats and meat shops.

According to Kaiser Bengali, a distinguished Pakistani economist, Pakistan, after having achieved independence from British colonialism, has entered into the stage of “cantonment colonialism”.

Can Political Change Revive Economy?

Is there a way forward? Injecting even USD 200 billion into Pakistan's economy wouldn't yield significant changes because the core issue lies not in finances but in the structural flaws within its governance system which resists reform and perpetuates economic stagnation, turning the economy into a black hole.

Regardless of monetary influx, without genuine political will and public trust in leadership, the economy will remain trapped.

Given the political instability and the looming civil strife, the new finance minister will face a Herculean task in rescuing the faltering economy and curbing financially precarious practices.

Will the finance minister be able to navigate the challenges posed by the incarcerated Qaidi No 804, Imran Khan, in Adiala Jail and the influential military boots in Rawalpindi?

Probably not.

(Akhil Bakshi a Fellow of Royal Geographical Society, Fellow of Explorers Club USA, and Editor of Indian Mountaineer, has authored 27 books including Between Heaven and Hell: Travels Through South Asia. This is an opinion piece and the views expressed are the author’s own. The Quint neither endorses nor is responsible for them.)