by Michael Roberts
Pakistan has 200 million people and 105m of them were registered to vote in today’s general election. This makes it the fifth largest democracy and second largest Muslim democracy after Indonesia in the world.
Who won? Well, it seems that voter turnout was unchanged from the
last election in 2013, at just 53%. So the ‘no vote’ party was the
biggest winner. But a relatively new party has won the most seats in
the National Assembly. This is Pakistan Tehreek-e-Insaf (PTI) or
Pakistan Justice Party, led by Imran Khan,
a former international cricketer (the sport inherited from British
colonial rule and godlike in the Indian sub-continent, muslim and hindu
Khan’s party has defeated Nawaz Sharif’s
Muslim League. Sharif was the former prime minister of Pakistan before
he was convicted of corruption. Sharif’s family came under judicial
scrutiny over the Panama Papers.
After disqualifying Sharif from holding public office the Pakistan
courts was sentenced him to jail and he absented himself to the UK.
Just before the election he came back to Pakistan to start a 10-year
jail sentence. This martyrdom, as he sees it, was designed to increase
the chances of an election victory for his party now led by his brother.
But this risky move appears to have failed.
Pakistan is one of the most unequal countries in the world. Just 22
families control 66% of Pakistan’s industrial assets and the richest 20%
consume seven times more than the poorest 20%. Both the names Khan and
Sharif mean ‘ruler’ or ‘noble’. According to a 2013 study,
45% of all holders of office across Pakistan came from family
‘dynasties’, moving from one party to another with bewildering rapidity,
with their political direction decided by whom the military
Khan has won because he had campaigned for several years on ‘fighting
corruption’, for which the previous two main parties of government, the
Muslim League and the People’s Party (led by the Bhutto dynasty), were
notorious. The anti-corruption message has won over sufficient voters,
mainly middle class. Khan appealed to this layer as a more ‘secular’
candidate (not surprising considering his personal affairs).
Although, the PTI’s support comes from the urban middle classes, in
the election he aligned his party with smaller extreme religious parties
in order to try to gain a majority, stepping back on equality and
‘social’ issues. Moreover, he is regarded as the new favourite of the
military, which wishes to continue its policy of backing the Taliban in
Afghanistan and allying Pakistan with China against India. China is now
Pakistan’s largest foreign investor.
Khan claims he wants to ‘depoliticise’ the police and establish ‘law
and order’ in a violent crime-ridden society; to ‘improve health and
education’ through bringing health insurance to 70% of the
population. Yet in no way is Khan sympathetic to the interests of
Pakistan’s working class or rural farmers. He is set to follow the
dictates of the IMF as the ‘solution’ for Pakistan’s continuing economic
failure. And that means his policy ‘aspirations’ will never be met.
The reality is that Pakistan’s stuttering economy is entering yet
another period of slump and crisis after a short boom. The IMF’s last
report reckoned that Pakistan was growing at 5-6% a year. But this was
only being achieved by cheap money policy from the central bank, fiscal
spending and a rising current account deficit.
Foreign exchange reserves have fallen to just 2.3 months of imports
as the authorities tried to support the currency despite the
deteriorating economy. The trade deficit and upcoming FX debt
repayments will double external financing needs, taking a further toll
on foreign exchange reserves. Pakistan will soon require an IMF funding
package to pay its way, and with it, will follow yet another period of
Although there has been some improvement in human development
indicators in Pakistan since 2010, youth enrolment in higher education
and skills training remains very low. In health, stunting is chronically
high among children under five years of age, with 44% in this age group
being either severely or moderately stunted. A large proportion of the
population still does not have access to piped water at home or toilets
linked to a sewage system.
There is little in public funds available to deal with these problems
because the rich pay little or no tax. Less than 1% of the country’s
working population file income returns. Of the 72,000 or so firms
registered in 2016, less than half filed returns. And of those that
filed returns, half paid no tax at all. Pakistan aims to increase tax
collection to 15% of GDP by 2020. But growth in direct taxes is
actually slowing because of a sustained reduction in corporate taxes.
Most taxes are indirect i.e. through consumption purchases, which hit
the poor the most.
Investment by the capitalist sector is just 11% of GDP (and falling),
with another 4% from the public sector. This compares with China at
45% or even most less developed countries at over 20%. Most income held
by the rich goes into real estate and financial assets (much of it
Exports make up just 7.6% of the country’s GDP. That’s nearly 17 percentage points less than than the average for middle-income countries overall.
What the country does export tends to be low-value-added products, like
cotton and rice. Pakistan is the 115th most competitive nation in the
world out of 137 countries ranked in the 2017-2018 edition of the Global
Competitiveness Report. As a result, Pakistan relies on an ever-decelerating flow of remittances and outside funding, which makes it highly susceptible to external shocks.
As Khan takes over (with the military behind the scenes) Pakistan is
facing another balance of payments crisis. The Pakistan rupee is diving
as a result as FX reserves run out.
Without Chinese investment and funding, the crisis would already be
upon the Pakistan economy. The China-Pakistan Economic Corridor (CPEC)
is a collection of infrastructure and trade projects, valued at up to
$63bn. It has become the centrepiece of China’s $1 trillion-plus Belt
and Road Initiative (BRI). From shoddy ports and expressways to
inefficient power plants, the Chinese-funded CPEC aims to resolve many
of the shortcomings that have stifled Pakistani manufacturers. The flow
of loans to Pakistan has surged since 2015.
All this means that the Pakistan ruling elite must choose between the IMF for future funding or rely on the ‘goodwill’ of China.
Over to you, Imran Khan.