Asia

Zardari Bankrupts Pakistan again

وَلاَ تُؤْتُواْ السُّفَهَاء أَمْوَالَكُمُ الَّتِي جَعَلَ اللّهُ لَكُمْ قِيَاماً وَارْزُقُوهُمْ فِيهَا وَاكْسُوهُمْ وَقُولُواْ لَهُمْ قَوْلاً مَّعْرُوفًا
“Give not to the foolish your wealth, which Allah has assigned to you to manage; but feed and clothe them from it.” [An-Nisa: 5]

The IMF has finally approved a $7.6 billion loan to Pakistan after much denial by the Pakistan government. Pakistan currently has a large trade deficit and is unable to pay its previous loans and bonds which are about to mature. As the country teetered on the brink of collapse Zardari and his ‘friends of Pakistan’ panel of experts went around the world with a begging bowl seeking handouts.

Zardari’s shady history was probably enough for most donors to turn him down. However the situation is so dire that the Zardari government is actually asking for money so it can actually carry out basic government functions.

The external debt of Pakistan will now rise from $46 billion to $53 billion the highest in its history. The Pakistan economy is worth $160 billion (same as Israel) whilst the government budget is only $20 billion.

Under the IMF terms, Pakistan will receive immediate access to $3.1 billion under a 23-month facility, with the remainder phased-in subject to quarterly reviews. The agreement means that the country is well-placed to cover an international sovereign bond maturing in February, but it falls well short of the $13 billion that the IMF has said that Pakistan will require this financial year.

There were 16 conditions laid down by the IMF that Pakistan eventually had to agree to. These included the reduction of overall government spending and the increase in taxes. The IMF is already preparing a paper on a number of new stealth taxes, which include the imposition of the Central Excise Duty (CED) on services and agriculture sectors at the rate of 8 to 18 percent in place of the General Sales Tax (GST).

Zardari and his cronies continue to argue that the global financial crisis and the high oil and commodity prices have caused Pakistan’s shortage of cash. The government argues that they have little money to fulfill the basic needs of state since most of the revenues are used to import oil and provide subsidies to farmers in Punjab.

A closer glance at this economic crisis shows that it is rooted in the policies of the previous President Pervez Musharraf and his legacy of failure.

Under General Musharraf Pakistan’s economy was almost entirely driven by the real estate bubble, the stock market, foreign direct investment (FDI) and the service sector. All of these sectors in essence were reliant upon foreign money which has now dried up. Under Musharraf no sustainable development was achieved, in fact the improvement in the economy was a deception and events have now reached boiling point.  

Since Zardari came to power in September 2008 the economy has nose-dived. He accelerated much of Musharraf’s policies which were bankrupting the nation. Zardari has not presented any roadmap for economic revival or solutions to the economic challenges faced by the country. From his actions the economy is not the top priority as the ‘war on terror’ continues to be the focus of the government.

The absence of any roadmap has led to a number of short term tactical responses to avert economic collapse which will in the long run place Pakistan in further debt. Zardari like Musharraf has resorted to external finance and the failed policies of the IMF. Whilst Pakistan’s rulers may have changed, the policy of seeking external loans to fund government has remains the same.

Zardari has turned to the IMF at a time when many other nations are turning away from it. Both the IMF and World Bank find themselves in a precarious position where their largest debt holders are all on the verge of paying off all their debts, as they have realised what IMF and World Bank loans really entail. In the 21st century both Bretton Wood’s institutes have been unable to turn any economy they SAP’d (structural adjustment polices) into success stories.

The loans the IMF has provided have in reality simply delayed the inevitable and not solved the underlying problem. Under Musharraf agriculture and industry which would have generated much wealth domestically were neglected. Without any vision on developing Pakistan domestically Pakistan will again in a few months need to do the rounds again with the begging bowl.

Zardari has also accelerated US military action against Pakistan and what may be the future partition of the country. All IMF and World Bank loans need approval from the US as it’s the largest shareholder in the Bretton Wood’s institutes. This deal suits the US as it will now be able to extract what it has always wanted from Pakistan along the Durand line. Further IMF funding will be dependent upon Pakistan cooperating and acting as a US mercenary force along the Durand line. This loan has firmly placed Pakistan under US control. The US at the same time criticizes Pakistan at every turn with regards to its apparent support for the Taliban and not doing enough in the tribal areas. The continued bombing in Pakistani territory is in reality an undeclared war against Pakistan, that is eerily similar to how the US built the case for war against Iraq.

With no domestic sources of generating wealth, Pakistan will need another injection of money for its energy needs and trade deficit very soon. In reality Pakistan is in need of complete restructuring as its economy is currently not fit for purpose. Its largest sectors need to be expanded which is what the policy should have always been. Pakistan can easily become an agricultural powerhouse as it has the largely dessert Middle East a stone throw away. Pakistan also has the world’s largest untapped coal reserves which would fulfill its energy needs for centuries. Pakistan is also the gateway to central Asia which will be the area of future conflict between the US, China and Russia.

From some perspectives Pakistan is in a much better position than most of the industrialised nations were on the eve of their development. All Pakistan needs is a sincere leader ruling by Islam (Khaleefah) who will make use of Pakistan’s raw potential. Once this is achieved then the work of unifying with the rest of the Muslim world would begin.

 

Coming soon – New Book

‘New Pakistan’

An in depth study into the economy of Pakistan and why it has failed to cater for its people. Policies for industrialisation and domestic economic development will be outlined showing how they will solve Pakistan’s economic problems.