Country Risk & Threat Advisory Briefing: Pakistan June 2022

Introduction
The legacy of the British partition of India in 1947 is still felt. Pakistan, the resulting Muslim-majority state, has been a country on the edge of religious fervour, political upheaval and existential dread for its entire existence. As one party in the world’s comparatively forgotten nuclear détente (outside of South Asia that is), and a nation that seeks at least regional pre-eminence behind India and China in terms of political influence and economic attractiveness, Pakistan should be a leading candidate for regional investment but is continuously let down by its own, largely self-inflicted failings. The country now faces perhaps its moment of biggest crisis since independence, with enemies on all sides and an untested Prime Minister, and it is far from clear whether it is fit to meet these challenges.
Politics: an autocracy that’s just not cricket
Pakistani politics is a pendulum. It swings between outright military rule and democratically elected governments that are more reliant on the army than they care to admit, between secularism and aggressive Islamisation, and between relative stability and barely concealed hostility. As a relatively young state, this upheaval has prevented Pakistan from developing a coherent political ‘throughline’, and the numerous tribal divisions that bring a wealth of social and cultural differences have made a singular vision even more difficult to achieve. This is reflected in the politics of today: a nominally ‘democratic’ Pakistan where the guiding hand (or threatening presence) of the army is never far away, where diverse questions of secularism and tribalism do not, and cannot, have any binding factors to create unity, and corruption which was given free reign since 1947, has now infected all metrics and become pretty much the only constant.
Politics from 2018 until very recently, was dominated by Imran Khan, former cricketer, and the Pakistan Tehreek-e-Insaf party he led. Unsurprisingly, their initial election victory was marred almost immediately by claims of military vote-rigging and subsequent strong influence in what is supposed to be a democratic, civilian administration. Thus far, social protests have been localised and limited, with multiple marches having no discernible effect on the practicality of politics, although popularity is quite another matter. Khan had to hold together a loose coalition of all tribal and cultural factions, align the undeniable military involvement with the faction that abhors any army and claim some measure of political legitimacy amidst the corruption. This is a tall order, at any time.
Khan had been coming under increasing scrutiny and criticism for his economic policy (discussed in the section below) and now, the disparate opposition groups were able to unify long enough to force him out of office in a Supreme Court-backed, no-confidence vote coming just after Khan had failed to dissolve Parliament. But this comes at the worst possible time: any successor will have to reckon not only with the fallout from Khan’s economic and social policies but deal with potential international condemnation from Pakistan’s pivot to Russia and have only eighteen months until the next elections, meaning that selling unpopular policies is a fool’s game.
The most likely beneficiaries in the long run would be the Pakistan Democratic Movement, a loose coalition of multiple opposition parties and figures seeking to ‘grind down’ the current government by the expulsion of Khan, mass street demonstrations to convince the successor that legitimacy has been lost and limiting present and future military control. This last point in particular, will prove very difficult to overcome. Shahbaz Sharif, leader of the Pakistani Muslim League Nawaz, a well-respected former governor of Punjab and brother of previous PM Nawaz Sharif, has taken the reins of power in the short term. But his first battle will be to stake out a position of strength in adversity. It is widely believed that the military and intelligence services could have saved Khan, had they so chosen. That they did not, speaks to an assumption that his was a lost cause, and the New Man, whoever he is, would be more suitable. The danger for Sharif, and Pakistan in general, is that they have simply swapped one puppet for another.
Economy: in debt to overconfidence
Pakistan’s economy has always been a case of unfulfilled potential. Political disagreements and military predominance, coupled with infrastructural and legal climates that obstruct as much as they attract, have left the economy underdeveloped and unable to face the challenges of the modern world. It remains heavily reliant on agriculture and textiles with little sign of diversification thus far; something of a Catch-22 situation. Is it that diversification has been hampered because of the comparative lack of reform and investment, or are these qualities lacking because of the lack of diversification? Investment remains weak (particularly in key infrastructural/economic evolutionary sectors) and the drive for reform remains inadequate, all the while that the current system allows for corruption to enrich those that make and enforce the rules.
The weaknesses of the domestic economy are reflected in the international situation. At present, Pakistan cannot purchase fuel on the spot market and is being forced to seek cheaper (and worse) alternatives for increased prices or foregoing them completely: risking shortages and disruption to citizens and business alike and doing no favours to any government.
During his premiership, Imran Khan had been increasingly turning to the IMF for loans to prop up the economy in a move which his opponents have described as displaying poor governance and creating a reliance on international ‘handouts’. This perception that Pakistan’s economy is not ultimately helped by these IMF tranches (the most recent being $1.05bn USD in February) is made most flesh by the assertion that Khan was ‘selling out Pakistan’s sovereignty’ – a particularly inflaming word in these troubled times. But the consequences of ousting Khan are wide-ranging. Not only the flight of Foreign Direct Investment from investors spooked by the apparent rejection of international financial help, but the wariness of major trading and developmental partner China, in the joint ongoing projects for fear that Pakistan may now not be able to pay what it owes. A growth rate of 5.9% by 2025 is after all based largely on a ‘China-centric strategy’ and the continued economic uncertainty will be exacerbated by this. Also, the legacy of coronavirus looms large and Pakistan’s economy, never too strong on its own terms, took a significant battering over the past two years, with a 26.4% decline in GDP and rise in poverty – albeit that the reluctance to impose strict lockdown measures lessened the pain compared to elsewhere in the region. But now, there is nowhere to hide.
Foreign Affairs: something old, something new…
Pakistan’s foreign affairs can be characterised by old enemies, and new friends. For the old, India – the long-standing enemy with whom relations are permanently suspicious at best and outrightly hostile at worst. Three outright wars have been fought between the two since 1947 and the nuclear arsenals of both sides adds an extra layer of tension to the permanent ‘war of words’. Any chance of peace is remote, and at present, India and Pakistan have settled into an uneasy détente that remains localised to the two countries – although India’s removal of the historical special status from Jammu and Kashmir in August 2019, represents the most recent low.
And for the new, Russia. Pakistan has pursued greater Russian trade and economic co-operation for some years and has been carefully neutral on the ongoing invasion of Ukraine, and Imran Khan, in his final weeks of office, indicated that he would not bow to Western pressure to condemn the war (indeed he met Putin the same day that the war began). As the list of Russia’s friends grows ever-shorter, Moscow and Islamabad may be forced together by necessity as much as expediency. Pakistan is keen to be considered the dominant power in South Asia as much for genuine economic and political benefits as it is to ‘get one over’ India. The potential for a triumvirate of Russia, Pakistan, and China (the other significant actor) to operate at a new level of association and understanding could at best – or worst, depending on your viewpoint – reshape the continental economics; and if we learn anything from the Russia-Ukraine war, it is that what starts local, rarely remains that way for long.
The question is to what degree these relationships (whether positive or not) impact upon global opportunities. Certainly, there is no sense of the strict choice between India and Pakistan being a ‘zero sum’ game for investors: a company can quite happily engage in one market without cutting itself off from the other. However, this is complicated when the increased presence, and influence, of Russia and China becomes a factor. For its part, China has always viewed India as the country most likely to challenge its dominance and an outside firm attempting to keep both happy could find itself at odds with Beijing; meanwhile Russia, with Pakistan a rare entry in its fast-emptying book of friends, might seek to ensure that firms either do business in the way, and locations, that Moscow wants, or they do not do business at all. These might be considered questions for those looking to enter India, rather than Pakistan – but the regional and global implications of being forced to make a business choice cannot be denied.
For the new Prime Minister, acutely aware of the moral and commercial imperatives to boycott Russia economically and politically, such arguments might be just as persuasive as the idea to do the opposite of whatever Imran Khan would have done to create sufficient distance. There is no guarantee, however, that principle will override political pragmatism.
Corruption: the hand of the State
Pakistan’s corruption is widespread and non-discriminatory: if there is an opportunity, or money to be made, someone will go for it. Purely statistically, last year alone, the country dropped 16 places on Transparency International’s rankings to 140/180 in a downward trend that was the hallmark of Imran Khan’s time in government, something which likely smarts as much as the fact that Pakistan was only rated at 28/100 for transparency, while India was at the comparatively lofty heights of 40. It is, however, a reputation that is well-earned. Since partition and independence, Pakistan has been sliding ever-further into the establishment of corruption as a fact of life, with state capture and other government misdeeds being the predominant form. The laws are not strong enough to protect the victims, in large part because those making them are those that benefit from corruption in both the public and private spheres. There is certainly an irony that former PM Khan’s election campaign was built upon a promise to punish ‘corrupt politicians’ while levels of transparency fell to record lows under his tenure, and a sense of justice that a PM proven to be no better than the rest, has continued Pakistan’s record of never seeing a Prime Minister complete a full term.
But while Khan is gone, the corruption that his government endorsed, ignored, and oversaw continues. At the grand level, the state embeds itself in major partnerships and projects, with backhanders almost required before the government will ‘move’ and with the involvement of powerful and controversial figures who can ‘sway’ a project far from its initial course. The judiciary is widely considered to be in the pocket of one high-level figure or another and the biggest projects are always effectively in the gift of the elite. Meanwhile, at ground level, petty bribery and backhanders are a recognised and depressingly relevant language, with very little of consequence moving without either support from above, or money changing hands. This is particularly apposite for a bloated bureaucracy/administration at all domestic levels, and where nepotism allows for decisions to be taken based on self-interest rather than that of the country.
One issue of specific impact and concern is money laundering – despite repeated protestations, Pakistan remains on the Financial Action Task Force’s ‘grey list’ for having insufficient measures in place to deal with the laundering that finances both criminal, and terrorist, activity. Whether intentionally non-compliant or simply incapable of meeting international standards, this is a continuing black mark against Pakistan’s economic and political prospects, as well as an extra concern for foreign companies: unwitting engagement in money laundering for purely mercenary purposes is bad enough, but to be complicit in effective terrorist funding takes it to another level. And regrettably, the laws and measures in place to deal with laundering, as with other forms of corruption in Pakistan, are simply not robust or enforced enough to be of note. The National Anti-Corruption Strategy has been running for twenty years and is still little more than a footnote.
Security: bordering on the instable
For the past ten years, Pakistan’s image in international security has largely been shaped by the revelation that Osama Bin Laden, the world’s most wanted man, was hiding less than a mile away from the Pakistan Military Academy in Abbottabad, with concomitant questions over just how unaware the Pakistani military had been. However, the country sits at a crucial confluence of geography and geopolitics, with impacts for security both regional and international. The most significant shift in recent times has undoubtedly been the Taliban’s regaining control over Afghanistan. While Pakistan was never highly critical of the Taliban in the spheres of human rights and diplomacy, the two have always been at odds over extremism and the degree to which violence in Afghanistan spills over the border (particularly into the Federated Tribal Regions). Given that Pakistan’s pre-eminence in bilateral relations with the Taliban has been assumed by Qatar, the new leadership in Kabul may be even less concerned about keeping the peace with their neighbour. The Tehreek-e-Taliban Pakistan (TTP) were largely suppressed by American intervention over the past decade, but foreign support is gone now, and there are already signs that the TTP are returning, regrouping not only in frontier territory but also, far more seriously, in the central urban areas.
On the other side of the country, the question of Kashmir, and that of Indo-Pakistan relations in general, is not going away. A ceasefire which has been in place for the past year has held in terms of denying outright violence between the states, but the rhetoric – and the civil unrest – from both sides continues unabated. The DGP of Jammu-Kashmir on the Indian side, Dilbagh Singh, has recently indicated that the youth need to be armed with ‘guns and grenades… to stop the violence’. Whether he is thinking purely defensively, from terrorists and the like, or aggressively in terms of some form of populist uprising into Pakistan, is not clear. And the newly minted PM Sharif, did not even wait until the end of his maiden address to indicate the need for a resolution to the Kashmir crisis. With both sides claiming that impetus must come from the other, and history having a regretful track record of showing that such standoffs often ‘boil over’ into flashpoints of violence, the ceasefire may yet collapse at the hands of either side’s civilians or the military.
While Pakistan cannot be blamed for the encroachment of Taliban and other terrorist groups, one can certainly criticise them for exacerbating the insecurity through the unshakeable desire to bring all Pashtun and border tribes more firmly under the thumb of Islamabad, which has gone down extremely poorly.
What these mean is that the security situation in Pakistan is more febrile than it has been for a decade, and that the weakness of the borders on all sides, plays a direct role in fomenting risks and threats within Pakistan itself. A resurgent Taliban, increasing violence in Balochistan, growing sentiments on the Indian border and the absence of a US military presence to mediate or enforce the peace, is a recipe for extreme danger, no matter your sector or nature.
To download a copy of this Country Risk paper, please click here.

Categories

Author

spencercudedesign

spencercudedesign

Share this article

Scroll to Top