Will Pakistan Be Less Of A Nuisance?

With a narrow industrial base and dysfunctional politics, and a counter-productive national security agenda, Pakistan could well remain an 'international migraine', observes T N Ninan.

Is this a seminal moment in Pakistan's long-term decline?

Ten days of intense negotiations with a visiting team from the International Monetary Fund brought the negotiators close to an agreement on how to manage the crisis-ridden economy in return for the release of a loan.

But a deal is yet to be sealed and must wait for further parleys, to be conducted virtually, as the official IMF statement says. No IMF board approval is on the cards as yet.

Loan or no loan, Pakistan is in for hard times. The choice is between default and chaos, Sri Lanka style, and a series of harsh measures that Pakistan's prime minister described the other day as 'beyond imagination': Higher electricity bills, higher taxes, lower subsidies, and brutal inflation (already 27 per cent) that will cause an all-round decline in living standards.

All this on top of two decisions already taken: A free float of the currency that fell overnight by about 15 per cent, and cumulatively by 35 per cent over the past year, and higher fuel prices.

The question is whether the people of Pakistan will accept all of this package as their fate.

They must know that the alternative is international default, with everything that implies.

Such drastic measures point to the financial cul-de-sac that confronts Pakistan, which so far has been skilled at extracting money from lenders in return for promises that invariably get broken.

But not skilled enough to negotiate proper project contracts with China under the broad rubric of a China Pakistan Economic Corridor.

These were supposed to deliver the country from perennial power shortages and boost economic growth through the provision of superior transport and port infrastructure.

As things have turned out, though, the plant equipment was imported as also the coal to run the stations, and the loans were on expensive terms.

The Chinese companies that set up and now run the power stations have not been paid, and threatened recently to shut down operations.

Meanwhile, power shortages continue.

If the IMF eventually opens its tap, others will do so too -- including China and some Gulf countries.

All of them have bailed out Pakistan repeatedly, but Islamabad has kept coming back for more.

Creditor fatigue has therefore come up against debtor credibility, even as China has shown (as it did in Sri Lanka) that it is as hardnosed as any creditor when a borrower country seeks a renegotiation of loan terms.

The question though is, are the loans merely a stop-gap liquidity arrangement, and not a long-term solution?

Arguably, the IMF hopes to make it both through the loan conditions that it has prescribed.

The root of the problem is that Pakistan does not have a viable economy.

Till import restrictions kicked in, imports were more than twice exports.

The gap was filled partly with loans and partly by US aid and military payments during the years when the country was a front-line State against Soviet-occupied Afghanistan and later when the US was fighting the Taliban.

When the US became increasingly disenchanted with Islamabad's double-games, the country cosied up to Beijing as an 'all-weather friend'.

One way or another, Pakistan saw salvation only in being a client State with the instincts of a rogue State.

Time has now been called on that game.

If the country is to start on a new leaf, a long road stretches ahead: Poor socio-economic metrics find reflection in a 'low' human development index (Bangladesh and India are in the 'medium' category), per capita income has slipped to being only two-thirds of India's, and tax revenue in relation to GDP is less than 70 per cent of India's, too low for the government to address basic developmental tasks -- especially since the military takes a good chunk of tax money.

With a narrow industrial base and dysfunctional politics, not to speak of a counter-productive national security agenda, Pakistan could well remain an 'international migraine' as someone once described it.

Still, when India looks west, it will see a relatively shrunken Pakistan consumed by its internal crises, and therefore hopefully less of a nuisance.