Last month, the State Bank of Pakistan (SBP) rejected the Finance Ministry’s decision to operationalise a relief fund for Afghanistan. The significance of the decision rests on its timing—it was the first time the bank had turned down the government’s request after the passage of the SBP Amendment Bill in January 2022. The bill was passed despite facing severe opposition and raised concerns about undermining Pakistan’s economic sovereignty, owing to the distressing state of its economy and its over-reliance on international aid agencies to keep it afloat. The bank, in asking the government to review its decision, cited the fear of sanctions from the Financial Action Task Force (FATF), bringing to the forefront the issue of Pakistan’s retention on FATF’s grey list.
The Imran Khan government is, thus, in an unenvious position. The resurgence of the Taliban didn’t result in the outcome that the state was hoping for, leading to an exponential increase in militant attacks within the country. The ongoing session of the FATF and the possibility of the country being demoted to the ‘black list’ makes it difficult for the leadership to keep the economy stable and bring reforms in line with international standards, and stave off the negative externalities of a new Taliban regime in its neighbourhood. Understanding the quagmire that Pakistan is in, and its wider implications necessitates an analysis of the support that it has given to the group, both historically and at present, and the dynamics that constrain its actions, most importantly, the dire state of the economy and its dependence on international aid.
A quest for strategic depth
Pakistan’s actions in Afghanistan have always stemmed from its fears about the growing influence of India in the region. Aiding and abetting the group since the Soviet invasion in 1979, the Inter-Services Intelligence (ISI) has provided medical and lodging facilities, intelligence input, weapons as well as monetary support to the terrorist group to augment its strength. The country’s actions in the region and its disinclination to lessen its support to the group stems from its very birth. As a nation founded on the premise of religion, the civil war in 1971 and India’s help in bifurcating the country sowed a perennial anxiety in the psyche of the policymakers. The shattering of an omnipotent Islamic identity elicited fears about the breakup of the whole state, with insurgencies in the restive Baloch region and Khyber Pakhtunkhwa, both bordering Afghanistan. Pakistan’s support was also hinged on a hope that the Taliban will give more credence to their Islamic identity than their Pashtun heritage, especially on the Durand line dispute as opposed to the US-sponsored government—a possible tool for Islamabad to gain some leverage in the country.
Hailing the return of the Taliban in August 2021, Prime Minister Imran Khan credited the terrorist group for breaking the “chains of slavery” and proclaimed the beginning of a new era in the history of the country. Even though there was a sense of cautious optimism in the Pakistani officialdom, concerns about the alacrity with which the group secured power were also present. The humanitarian crisis that unfolded resulted in an extremely volatile situation in the region. Already host to around 1.4 million Afghan refugees, approximately 3,00,000 Afghanis fled to Pakistan since the Taliban took over. The group’s victory also compounded the threat of domestic terrorism in Islamabad and the state’s incapability in preventing attacks. The major threat at present is from the Tehreek-i-Taliban Pakistan (TTP), which has links with the Afghan Taliban and other terrorist organisations in the region, with approximately 3,000-5,000 TTP militants present in Afghanistan. Other irritants, especially the dispute over the border with the recent flare up over the fencing of the Durand line has deteriorated the situation further. The public perception in Afghanistan is also stacked against Pakistan with many Afghans blaming it for the return of the terrorist group.
Irrespective of this, the Pakistani government has been advocating for the recognition of the regime and pleading the world community to lift the sanctions from its leaders and provide aid sans any strings. Even though there has been some domestic support for recognising the Taliban, the country has been uninclined towards taking any unilateral decision and inviting censure from the international community. According to the PM, the recognition should be a ‘collective effort’ by all the countries as “..the international pressure will become too much for us (Pakistan) as we try to turn our economy around.” Admitting the undermined security situation in Pakistan, Khan believes that stability in Afghanistan is directly proportional to peace in their country which is why they have been clamouring for the removal of sanctions.
People in crisis
Caught in a war between the US and the Taliban, the people of Afghanistan were already battling with myriad problems when the US forces left Kabul and the Taliban secured the reins of the country. Under the Karzai government, 45 percent of the country’s GDP and 75 percent of public spending was dependent on foreign aid grants. With the imposition of international sanctions and the complete cessation of aid after the group seized power, the people of Afghanistan have been facing unceasing hardships. The freezing of funds, while intended to prevent the Taliban from laying their hand on the aid money affects the lives of the Afghan people.
In January, the UN Secretary General Antony Guteress made the “largest ever appeal” for a single country, asking for US $4.4 billion for the Afghanistan Humanitarian Response Plan. While the US and other western countries have looked at ways to transfer aid directly to the common people through international organisations and NGOs, there are still concerns about its disbursal. In Islamabad, policymakers have discussed ways through which they could ease the banking crisis in the country, by either printing Afghan currency or extending credit lines and providing technical assistance to the central bank of Afghanistan, the Da Afghanistan Bank (DAB). However, global financial institutions and international banks have been reluctant in dealing with the DAB directly because of the fear of sanctions. The Taliban also proposed the formation of a joint body of its officials and representatives in the international organisations to coordinate the aid sent to Kabul, a suggestion viewed with scepticism in the international community because of its potential misuse by the group.
Afghanistan Relief Fund
On 8 December, Pakistan’s Finance Ministry announced the opening of a fund with “immediate effect” to meet the humanitarian needs of the people of Afghanistan. Open to donations from both domestic and international donors as well as contributions from abroad, the order was forwarded to the SBP, which for the first time rejected the government’s request. The bank asked the government to review its decision in the background of its commitments to the FATF, an international body which placed Pakistan under its grey list in 2018 for violating anti-money laundering and terror-financing standards. According to the bank, the bypassing of any international organisations of repute and the disbursal of the said funds through banking channels raised the possibility of attracting more sanctions from the financial watchdog. It suggested that relief should instead be provided through international aid organisations or given in kind. Responding to the rejection, the Finance Ministry tasked the law, the economic affairs, and the foreign office ministries to review the matter.
The citing of the fear of sanctions from the FATF become important in the context of the working group and plenary meetings of the group running at present in Paris after the last plenary in October 2021, where it retained Pakistan under the grey list. The country has suffered a loss of about US $4.5 billion in exports and a total contraction of 38 billion USD from 2009 to 2019 because of different sanctions. Even though the President of the group, Marcus Pleyer ruled out any discussion on blacklisting the country as it had completed 30 of the 34 action items, the FATF’s office in Paris saw protests by Afghans, Balochs, and Uighurs reminding the organisation of Pakistan’s contribution to terrorism and urging it to place it under the blacklist. This shows the distrust that the people, especially the minority diasporas have about the intentions of Pakistan. In Pakistan, the political elites consider the country’s retention in the grey list a political decision. According to the Foreign Office spokesperson who spoke at his weekly media briefing last week, “ the country has completed all technical requirements of the FATF, and it is only because of certain members of the group that the watchdog has refused to remove it from the grey list.”
Rock and a hard place
The bill granting more autonomy to the central bank was passed in the opposition after a lot of debate and dissension. A precondition for receiving a tranche of US $1 billion from the International Monetary Fund (IMF) under the Extended Fund Facility, the government had no choice but to carry forward the reforms. The bill mandated that the bank should “neither request nor take” instructions from any entity, including the government and forbade it to extend direct credit to the government. The opposition termed it as “against national security” and challenged it in the court a day after its passing with even the ruling party having some reservations about its provisions. However, with unemployment and inflation skyrocketing and domestic opposition multiplying with every passing day, it seems hard to imagine the State defying international demands and walking its own path. This weakened economic position had made it extremely unlikely for Pakistan to influence the situation in Afghanistan for its own benefits. It is now caught between lobbying with the international community for recognising the Taliban regime but with no way to deal with the crisis itself when it has no idea and no resources to improve the situation.
An easier way out would be to clamp down on the militants inside the country and accept that its military-intelligence apparatus has failed, which may relieve some international pressure. However, this seems like a bleak possibility because of its potential for reducing the country’s bargaining power and undermining the apparent invincibility of the military and ISI.
