Money Matters

New challenges

January 8, 2018
By Zeeshan Haider

The US President Donald Trump has done what was apprehended for a long time. In his first tweet of the year, setting aside diplomatic niceties, he attacked Pakistan for what he thought its failure to rein in militant groups despite pocketing billions of dollars of aid from the United States since 9/11.

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The US President Donald Trump has done what was apprehended for a long time. In his first tweet of the year, setting aside diplomatic niceties, he attacked Pakistan for what he thought its failure to rein in militant groups despite pocketing billions of dollars of aid from the United States since 9/11.

That tweet was followed by a series of punitive measures by the US administration which included placing Pakistan on the watch list of countries known for “severe violations” of the religious freedom as well as suspension of all security assistance to Pakistan until it takes concrete measures against militant groups which Washington alleges operate out of Pakistani soil.

Pakistan gave a measured response to the wild allegations. It rejected the US accusations and reminded the Trump administration of the huge human and material sacrifices it has rendered after joining the war on terror, but at the same time expressed its readiness to engage with Washington in a constructive manner to resolve problems.

The Trump administration has yet to give specific figures that how much aid would be slashed but according to some estimates it could be somewhere between 900 million to one billion dollars.

This includes 255 million dollars in aid for military equipment and training under the Foreign Military Financing Fund and 700 million dollars under the Coalition Support Fund (CSF). The CSF basically is not aid, but it is reimbursement of the expenses incurred by Pakistan in the war on terror.

Pakistani officials said Pakistani economy incurred losses worth 120 billion dollars in the war on terror and what it received in return from the United States is just peanuts. Moreover, over 70,000 Pakistanis, including security personnel and civilians lost their lives in this war.

Pakistani officials believe that the country could ride through the aid cuts announced so far as the United States has already reduced assistance over the years.

For example, they said Pakistan received around one billion dollars in US aid in 2016 as against 3.5 billion dollars it received in 2011.

However, further cuts that could include economic assistance could have negative impact on Pakistan’s economy.

The US envoy for the United Nations Nikki Haley has already warned that Trump could go to “great length” to stop all aid to Pakistan in case it does not do what is needed of him by Washington.

Economic experts believe that though the US aid reduction may not have a big impact on Pakistan, any attempt by the Trump administration to use its clout in the international financial institution, like the International Monetary Fund (IMF), the World Bank and the Asia Development Bank (ADB) could squeeze Pakistan.

The present government is confident about the economic situation of the country and has presently ruled out the possibility of going to the IMF for any bailout package to avert possible balance of payment crisis in the coming months. However, experts say the caretaker government to be formed to oversee this year’s election or the government formed after the election might have to eventually go to the IMF in view of the precarious foreign exchange reserves situation.

Emboldened by China’s strong and unequivocal support for Pakistan’s efforts to fight terrorism in view of the mounting pressure from the United States, our rulers believe that Beijing would also help Pakistan in case of any financial and economic crunch caused by the US aid cuts.

Nonetheless, the experts believe Pakistani policy makers should explore home-grown solutions to the financial and economic challenges faced by the country.

Successive governments have relied on orthodox and outdated measures to bring about improvement in the taxation system of the country and have avoided innovative and concrete measures to reform the taxation system.

Unless Pakistan introduces a strong taxation system which brings the powerful and elite class of the society in the tax net, there are no chances for the country to address its long-standing economic woes.

Pakistan needs to undertake the much-needed structural reforms that would provide a strong base for the economy which would enable it to sustain foreign pressure and independently formulate its foreign policy. China is undoubtedly a time-tested friend of Pakistan that has always helped in the times of crises, but Islamabad needs to take some home-grown measures that reduce this overbearing reliance on foreign aid even from a friend like Beijing.

In the short run, Pakistan’s main challenge is huge trade and current account deficits.

The government is confident that the twin deficits could be reduced through increase in exports which registered 16 percent rise in the first quarter of the current fiscal year. It believes that downward adjustment of the rupee against US dollar and an increase in the export package announced early last year would give further boost to the exports.

These are good steps but they are unlikely to reduce the twin deficits to the manageable level.

The government has to do a lot more to achieve this objective. However, the government is unlikely to give due attention to economy in view of the upcoming elections.

The political governments, generally, in election years avoid taking long-term and far-reaching economic measures and prefer to take populist steps that help it extend its vote-bank.

Moreover, in view of political uncertainty in the country in the run-up to elections following dismissal of Nawaz Sharif as prime minister, his predecessor would prefer to run economy on day-to-day basis and leave the major steps for the impending governments to take. Pakistan’s growing challenges could not be addressed by a government in power alone but it needs all stakeholders – political opposition, military and others – to work sincerely and in unity to meet these challenges.

Following Trump’s threats, there have been growing calls from different quarters for unity among the nation but in reality little has changed on the ground. The political leaders were seen more interested to settle their political scores instead of giving a serious thought that how this challenge could be addressed.

The debate on the political and media forums was largely centred on populist and nationalistic verbosity devoid of any sober and thoughtful consideration to face these challenges.

The writer is a senior journalist based in Islamabad