'A Descent Into Chaos': How India Can Play A Role In Pakistan's Economic Revival

The real 'economic’ problem is the amount that the Pakistani Defence insists on being allocated to them.

An article published on 14 June 2023 in Pakistan’s most respected newspaper Dawn, gives details about the country’s dire financial exchange situation leading up to the incoming financial year, beginning 1 July. The author, Khurram Hussain, who modestly describes himself as a "Business and Economy journalist”, is one of Pakistan’s most authoritative voices on the economy, and particularly on its macro-economic condition. What he writes, therefore, has to be taken most seriously.

Khurram Hussain, after examining various scenarios relating to the inflows and outflows of foreign exchange in the coming financial year, concludes thus, “No major covenants have been broken with the country’s external creditors so far. But for the next fiscal year, Pakistan is looking at a higher debt service bill, very slim chance of securing external financing support, and far lower level of reserves than last year. The possibility of landing up in a situation where the foreign exchange reserves can no longer support even the basic life support systems of the economy is now a clear and present danger. If financing does not arrive fast, the situation would have lingered too close to the edge for far too long for a country of 220 million people."

Pakistan’s Nuclear Stock & Implications on Its Economy

Essentially, Khurram Hussain is warning the country’s decision-makers, and also perhaps its traditional donors, about the emergence of a situation akin to Sri Lanka in Pakistan, where the country does not have enough foreign exchange to import even fuel and medicines.

Hussain has considered Pakistan’s macro-economic situation from the perspective of an economist. Therefore, while mentioning Pakistan’s population figure, he has omitted what members of the global strategic community, as well as governments always factor in: Pakistan is a country of over 220 million which possesses nuclear weapons. That makes its situation different from that of Sri Lanka, and unlike other countries that have suffered economic meltdowns.

The major powers and Pakistan’s donors have remained consistently worried about the possibility of the country descending into chaos. The assumption, though never stated, is that Pakistan cannot be allowed to suffer the fate of Afghanistan or Somalia, for that would be dangerous for international peace and security on account of its nuclear arsenal.

The Pakistani military and civilian elite have also worked on the assumption that since the country possesses nuclear weapons, it always be rescued. And it has been so thus far. That is why it has gone to the International Monetary Fund (IMF) a total of 23 times.

The Urgency For Solutions

It can be safely said that the IMF has always overlooked the fact that Pakistan has never fulfilled the conditions to bring about structural changes in the economy to which it had committed. That is also why Pakistan’s Arab donors, China, and even the United States have rescued Pakistan over the past three decades.

However, the international economic situation where even economies of rich countries are not entirely in good shape, along with a sense that the Pakistani elite has 'played’ the international community for far too long, has led to a degree of impatience. There is a growing insistence that Pakistan sets its economy in order even if that means that it has to take unpopular decisions such as withdrawal of fuel, power, and food subsidies. The present Pakistan Democratic Movement (PDM) government led by Prime Minister Shehbaz Sharif has taken some steps in this direction at great cost to their popularity all over the country.

The real 'economic’ problem for the country is the amount that the Pakistani Defence Forces insist on being allocated to them. The Pakistani Army, in particular via its saviour narrative from it's 'permanent enemy' India, pretty much digs its own grave.

This was again demonstrated when in the budget for the financial year beginning 1 July, the allocation for the Defence Forces has been increased by 13% over last year’s allocation.

The fact is that Pakistan’s economy is on life support. Despite Khurram Hussain's fears, it is unlikely that these systems will be removed. The problem is that Pakistan has the capacity to achieve economic progress if it is willing to take difficult socio-economic decisions, curtail defence expenditure and begin to behave like a normal country which seeks to take advantage of a much bigger growing economy like that of India.

Clearly, the hope that the China-Pakistan-Economic-Corridor (CPEC) will become the catalyst for economic stabilisation and growth has not happened.

Restoration of India-Pakistan Trade 

Recognising the need to open up economically with India, Pakistan’s leading industrialist and head of the Nishat Group, Mian Mohammad Mansha, has once again pleaded for the restoration of trade with India.

Pakistan had suspended trade in August 2019 after the constitutional changes in Jammu and Kashmir. Mansha said “…trade with India will open up many business opportunities”. He went on to add, "If China can have vibrant trade and business ties with India despite its territorial disputes, why can’t we? I think there’s nothing better than having good relations with your neighbours. And you can’t change neighbours."

“We need to get our things sorted out with our neighbours. Now whatever the issues that are impeding, let them be there. But once people come to one another’s country through trade and tourism, I think the doors will start opening.” Mansha also gave India’s example of the tough decisions it took in the early 1990s when it too had to take support from the IMF. Consequently, India did not have to seek further IMF or donor support. The Indian economy then took off, and now, as Mansha said, “Foreign companies are flocking to that country. This is because Indians have implemented tough reforms to facilitate investors and investments."

Mansha’s comments were endorsed in an editorial in the Dawn newspaper which needs to be quoted fully, because seldom has a Pakistani newspaper gone against the establishment’s approaches so candidly. The Dawn wrote that Mansha’s comments “echoed what many have been urging for a while now – that the revitalisation of trade with India, along with other regional economies, is a prerequisite to Pakistan’s long-term economic stability."

A Reconfiguration of Economic Policy 

Unfortunately, Pakistan seems to have shut itself off to importing both good ideas or cheap goods from its eastern neighbour. Urging the government to reconsider, many have reasoned that when other countries with historical rivalries do not refuse to engage economically with each other, why should Pakistan and India? It is difficult to disagree.

Indeed, if one were to thoroughly account for the costs and benefits of Islamabad’s decision to suspend trade with India, the bottom line would reflect a net loss for our people. Perhaps, it is time for our foreign policy pundits and decision-makers to reconsider their stance and decouple trade from geopolitical disputes.

From food to pharmaceuticals, Pakistan can import plenty from India –  and at far cheaper rates than from anywhere else in the world. Yet, we refuse to do so. With inflation crushing our citizens, the question of 'why’ must be revisited. The state can keep pursuing its principled differences with New Delhi even while the two countries trade. It did so, for the better part of their histories.

Pakistan has boxed itself into a corner, and it seems that there is no way it can extricate itself from the morass it has created for itself in its policy on India.

(The writer is a former Secretary [West], Ministry of External Affairs. He can be reached @VivekKatju. This is an opinion piece, and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for them.)