One of Pakistan’s top business tycoons Mian Muhammad Mansha, during the course of a television interview, said that Pakistan needs to take decisive and tough steps to resolve its current economic crisis. Said Mansha:
“The government must play on the front foot; business as usual cannot work any longer. These measures are imperative to change Pakistan’s perception as a country where rule of law is respected and investors are protected’
Rating agency Moody’s Investor Service had downgraded Pakistan recently from stable to negative, earlier this month, the Pakistani Rupee (PKR) has been steadily depreciating vis-à-vis the USD (as of June 9, 2022 it stood at 200.499 vis-à-vis the Dollar), while foreign exchange reserves fell below USD 10 billion as of June 3, 2022. In recent weeks, the Pakistan government increased fuel prices and electricity prices. While between May 27, 2022 and June 2, 2022 fuel prices were raised by 40% by the Pakistan government .
Power prices were raised 47%, on June 2, 2022, by Pakistan’s government with a clear eye on the revival of IMF’s USD 6 billion relief package (Pakistan and IMF had signed for this package, under IMF’s External Fund Facility program) . Last month, IMF officials in a meeting with senior Pakistani officials including Pakistan’s Finance Minister Miftah Ismail had categorically stated, that if Pakistan wanted a resumption of the IMF program it needed to do away with subsidies especially related to petroleum products.
As predicted, Pakistan’s decision to raise fuel and electricity prices drew the ire of the public and resulted in protests. In order to provide some relief to lower income families in the country, Pakistan’s PM Mian Muhammad Shehbaz Sharif announced a relief package worth Pakistani Rupees (PKR) 28 Billion or USD 140 million. Under this relief program, 14 million families would be provided assistance to the tune of PKR 2,000 per month.
The revival of the IMF bail out program is important, because it will provide Pakistan an opportunity not just to seek assistance from other multilateral institutions such as the World Bank and Asian Development Bank, but also countries like UAE, Saudi Arabia and China which had categorically stated, that they would only provide assistance to Pakistan, until it gets back to negotiations with the IMF.
Apart from reaching an agreement with the IMF at the earliest and focusing on drawing Foreign Direct Investment (FDI), Mansha recommended resumption of trade with India. Said Mansha in the interview:
‘Reopening trade with India might help Pakistan come off the Financial Action Task Force’s so-called grey list and ease its economic difficulties..’
In April 2022, Mansha in an interview to The Indian Express had batted for the resumption of bilateral trade with India which had been suspended by Pakistan, in August 2019, after the revocation of Article 370 by India in Jammu and Kashmir.
Significantly, during his visit to Turkey, Pakistan PM Shehbaz Sharif in a media interview had unequivocally stated that the resumption of bilateral trade will benefit both India and Pakistan. While speaking at the Pakistan Breakfast session in Davos, last month, Pakistan Foreign Minister Bilawal Bhutto had also said that a better economic relationship will help the region in unlocking its economic potential.
The government headed by Shehbaz Sharif has to contend not just with economic challenges but political challenges as well. Apart from the depletion of Foreign Exchange reserves and a continuous depreciation of the PNR vis-à-vis the USD, as discussed earlier, along with rising inflation, Pakistan’s former Prime Minister, Imran Khan has not only questioned the legitimacy of the government, but also threatened to launch an agitation in case elections were not announced at the earliest.
The PDM’s first priority is averting an economic disaster along the lines of what has happened in Sri Lanka. There is a possibility of incremental resumption of trade ties with India, by permitting import of some essential commodities from India. In March 2021, during the tenure of the Imran Khan led Pakistan-Tehreek-E-Insaaf government, Pakistan’s Economic Coordination Committee, had lifted a ban on the import of sugar and cotton from India, though this decision had to be reversed due to opposition by senior members of the cabinet – including then Pakistan Foreign Minister Shah Mehmood Qureshi. Given the current state of relations between New Delhi and Islamabad, expecting any big ticket steps with regard to trade relations is unrealistic. The PML-N government has limited political capital and revival of trade could lead to accusations of being soft on India. A gradual approach where trade is focused on specific commodities is one possible approach, which has often been suggested.
In conclusion, while there is a growing clamour for revival of economic relations, from the business community on both sides it is unlikely in the short term. While the Shehbaz Sharif led coalition in Islamabad, lacks the political capital, on the Indian side too it is unlikely that the Modi government will prioritise revival of trade ties with Pakistan at least in the near term.
