Pakistan celebrates its 75th Independence Day yesterday. Its citizens will take to the streets bearing flags in an annual show of national spirit but under a fragile exterior lies a political and economic future that remains uncertain.
More recently, the country posted economic data suggesting that it may have turned the corner in its battle with COVID-19, on the back of strong revivals in large-scale manufacturing, export-import oriented industries and construction. Some analysts have predicted that the country’s agrarian economy may also remain robust this year. Foreign exchange reserves also touched $24.87 at the end of July, and are expected to rise further in the upcoming months, most notably through a special allocation made by the International Monetary Fund (IMF) worth $2.8 billion.
But these economic indicators can do little to mask a swelling debt-to-GDP ratio and a rising fiscal deficit. The country’s economic fate is intricately tied to an IMF lending programme that has forced it to set lofty revenue targets if it is to finance its external debt. The country’s flirtation with China, specifically as it relates to the China-Pakistan Economic Corridor (CPEC) has, as per IMF figures, also seen Pakistan’s external debt to China rise to $90.12 billion – 27.4% of its total external debt.
In view of this, there are, of course, significant concerns of Pakistan inevitably being forced to surrender key sovereign assets to China but at the current juncture, the recent developments in Afghanistan will take precedence.
Pakistan’s security is, without a shadow of a doubt, linked to its neighbour in the west. For roughly four decades, the fallout from war, foreign military intervention and conflict in Afghanistan has threatened the economic stability of Pakistan.
Measures to fence the border, and increase border security, some observers note, may not be enough to stop the determined from crossing over, in the event that civil war erupts in Afghanistan, spilling into border areas. The prospect of an imminent refugee influx is clear and present with some reports suggesting that anywhere between 500,000 and 700,000 Afghans could be forced to flee across the border.
Pakistani military officials have also cautioned that continued conflict across the border may embolden terrorist sleeper cells within its own borders. Balochistan, they say, could see fresh episodes of violence from dissident groups, undoing any gains Pakistan has made in its counterterrorism campaign. PM Imran Khan, in fact, has previously conceded in a PBS interview that a civil war in Afghanistan could easily translate to “terrorism in Pakistan.”
The resolve of extremist forces may be bolstered by the success of the Taliban. Some analysts have also raised the possibility of a regional proxy war given the presence of several transnational armed outfits like ETIM, Daesh, TTP, IMU and Al Qaeda that continue to operate in Afghanistan.
An already ailing economy is also unlikely to be able to absorb the economic shock borne out of the instability across the border. Reports indicate that the economic spillover effect of the US ‘war on terror’ that began in the wake of the 9/11 attacks ran into billions of dollars in losses for Pakistan. This has the possibility of dampening further trade and investment into the country, rendering any reforms to improve the country’s business environment ineffective.
