Pakistan’s misery continues

8 February by Michael Roberts


Pakistan has a general election today. It will decide on the next government of the world’s fifth-most populous nation and the governments of its four provinces — Punjab, Singh, Balochistan and Khyber Pakhtunkhwa. Around 128 million people can vote to pick 266 representatives to form the 16th parliament in a first-past-the-post system. They will also vote to elect the legislatures of the country’s four provinces.



In a country of 241 million people, two-thirds are below the age of 30. A citizen becomes eligible to vote at the age of 18. But only a little more than half of Pakistan’s electorate voted last time in the 2018 elections. The previous winner of the 2018 election was former star cricketer turned politician Imran Khan. He was ousted from office in a no-confidence vote in parliament in April 2022. Since then, he has been shot and injured and then locked up for up to 20 years on various charges of corruption and sedition. Thousands of his party members have been arrested and he has been banned from standing. But polls suggest that he would win this election, if the election were ‘fair’.

No Pakistan Prime Minister has ever completed a full term. That’s because ever since the formation of the country, the military has been in control. It is the most powerful institution in the country with a huge 12.5% of the government budget going towards military spending. The military decide the needs of Pakistan’s elite.

Khan fell out with the military when the latter decided to switch sides from leaning on the support of China against its main perceived enemy, India and from relying on Chinese credit to survive. The military switched back to the side of the Americans with bribes of money from Saudi Arabia and the UAE and because of the desperate need to get funds from the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
, which Khan was reluctant to take because of austere conditions attached. “From a Washington perspective, anyone would be better than Khan,” said Michael Kugelman, the director of the South Asia Institute at the Wilson Center in Washington. In contrast, the likely winner of the election and the candidate backed by the military is perceived as “business-friendly and pro-America.”

The military don’t want to run the country directly, but they are making sure that they get a government that follows their interests. And this is the party of Nawaz Sharif, three-time former Prime Minister, who was previously ousted for corruption in 2017 and sentenced to 10 years imprisonment. In 2022 he returned to Pakistan with his corruption conviction swiftly quashed and his lifetime ban from politics overturned. His party and the military then ensured the removal of Khan. Sharif’s government is now trying to meet the demands of the IMF and the military to run the economy around.

And Pakistan’s economy is in deep trouble and in recession. Major floods caused heavy damage to crops and livestock, and with 44% workers relying on agriculture, this has driven millions into deep poverty. Investment has collapsed. It has been estimated that Pakistan needs more than $16bn to recover from the disaster.

Pakistan’s per capita income and GDP GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
growth are the lowest in the region, bar war-torn Afghanistan. Its unemployment and inflation Inflation The cumulated rise of prices as a whole (e.g. a rise in the price of petroleum, eventually leading to a rise in salaries, then to the rise of other prices, etc.). Inflation implies a fall in the value of money since, as time goes by, larger sums are required to purchase particular items. This is the reason why corporate-driven policies seek to keep inflation down. rates are one of the highest in the region. The Human Development Index, which measures a country’s achievements through three basic dimensions – health, knowledge, and standards of living – placed Pakistan in the 161st position out of 185 countries in 2022. In other words, Pakistan is among the 25 countries with the lowest human development in the world.

Pakistan remains in the grip of a small group of landowners and business families. It is one of the most unequal countries in the world. Just 22 families control 66% of Pakistan’s industrial assets and the richest 20% consume seven times more than the poorest 20%. The top 1% of income earners have the same share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. of total personal income as the bottom 50% (15.7%) and the top 1% of wealth holders own 26% of all personal wealth while the bottom 50% of Pakistanis have just 4% (World Inequality Lab). Both the names Khan and Sharif mean ‘ruler’ or ‘noble’. Around 45% of all holders of office across Pakistan came from family ‘dynasties’, with their political direction decided by whom the military establishment selects. Most income held by the rich goes into real estate and financial assets (much of it spirited abroad).

Investment by the capitalist sector is just 11% of GDP. This compares with China at 45% or even most less developed countries at over 20%. Exports make up just 7.6% of the country’s GDP. That’s nearly 17 percentage points less than the average for middle-income countries overall. What the country does export tends to be low-value-added products, like textiles, cotton and rice. As a result, Pakistan relies on the flow of remittances from Pakistanis working abroad (and these have been falling) and outside funding.

Remittances $bn

Pakistan depends heavily on imported oil. A constant decline in the value of the country’s currency has resulted in much higher energy costs. Pakistan’s real effective exchange rate, a broad measurement of the strength of a currency, declined from 88.0 in 2022 to 72.0 in 2023, and the Pakistan rupee is down 40% against the US dollar in the last year. The falling currency and rising living costs drove the inflation rate to near 40% (now around 30% a year). Interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation.
are at a record high, crushing investment.

This decline in the value of Pakistan’s currency is because of the country’s export failure. Pakistan is essentially running on foreign loans. External debt accounted for 36% of the country’s nominal GDP in 2023, a noticeable increase from the previous year. The government debt Government debt The total outstanding debt of the State, local authorities, publicly owned companies and organs of social security. -to-GDP ratio reached 89%. By June 2026, Pakistan will have to repay around $80 billion in foreign debt.

Balance Balance End of year statement of a company’s assets (what the company possesses) and liabilities (what it owes). In other words, the assets provide information about how the funds collected by the company have been used; and the liabilities, about the origins of those funds. of trade PKR m

Of Pakistan’s $126bn external debt and liabilities Liabilities The part of the balance-sheet that comprises the resources available to a company (equity provided by the partners, provisions for risks and charges, debts). , 30% is owed to China. Under the Belt and Road Initiative, China has invested more than $60bn in the China-Pakistan Economic Corridor (CPEC), which began in 2015. This connects the Pakistani port of Gwadar in the Arabian sea to China’s north-western region of Xinjiang through a network of highways, railways and pipelines. So far, of the numerous projects agreed upon under CPEC, only a few have been completed. Chinese frustration over endless delays in project completion, halting of projects, and security threats to its nationals working in Pakistan has resulted in hesitation to invest in new projects.

The military wants to switch away from Chinese funding to that of the West and the Arab states. In July 2023, the IMF approved an emergency $3bn Stand-By Arrangement (SBA) to avert a complete collapse and debt default. But the IMF wants Pakistan to go further and completely ‘float’ (sink!) its exchange rate, ostensibly to boost exports. And for any further loans that Pakistan wants, the IMF is insisting on the government increasing electricity tariffs and cutting government spending.

The military is now looking to sell off state assets to attract foreign investment. It has established a military dominated body to manage major economic projects in the country — the Special Investment Facilitation Council (SIFC). Comprising the prime minister and army chief, the SIFC has greenlit 28 investment projects to pitch to the Gulf nations. The SIFC is also trying to sell off the Reko Diq mines, one of the world’s largest reserves of gold and copper, to Saudi Arabia. Other plans include outsourcing management of airports to the UAE, privatising the national airline on an accelerated timeline and expediting a free trade agreement with the UAE, referred to as the Comprehensive Economic Partnership Act. With this strategy, the government hopes to get the US to back a further IMF loan.

Meanwhile some 700,000 workers have lost their jobs following the closure of about 1,600, or about one-third, of the country’s textile factories, which contribute 60% of the country’s total export earnings. One textile working family explained how the escalating cost of living was affecting them and their five children. The couple work extra-long hours to feed their three daughters and two sons, none of whom go to school. “We used to somehow manage our daily expenses within 500 Pakistani rupees (£1.40; $1.75) a day. Now things have changed. To cook just one meal, we need 1,500 rupees,” Mr Maseeh said. His wife added: “Our earnings are not enough even to provide a good meal. How can we afford to send our children to school?”

Pakistan’s adults vote today but with no prospect of obtaining an end to the disaster that it is Pakistan capitalism and landlordism and its military rule.


Michael Roberts

worked in the City of London as an economist for over 40 years. He has closely observed the machinations of global capitalism from within the dragon’s den. At the same time, he was a political activist in the labour movement for decades. Since retiring, he has written several books. The Great Recession – a Marxist view (2009); The Long Depression (2016); Marx 200: a review of Marx’s economics (2018): and jointly with Guglielmo Carchedi as editors of World in Crisis (2018). He has published numerous papers in various academic economic journals and articles in leftist publications.
He blogs at thenextrecession.wordpress.com

Other articles in English by Michael Roberts (95)

0 | 10 | 20 | 30 | 40 | 50 | 60 | 70 | 80 | 90

Translation(s)

CADTM

COMMITTEE FOR THE ABOLITION OF ILLEGITIMATE DEBT

8 rue Jonfosse
4000 - Liège- Belgique

00324 60 97 96 80
info@cadtm.org

cadtm.org