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The Big Picture
Pakistani Prime Minister Imran Khan largely inherited the deficit crisis now stifling his country's economic growth. But that hasn't kept his political rivals from leveraging Pakistan's latest financial downturn in their push to oust Khan after just a little more than a year in office.
See Pakistan: A Military With a Country
Elected or Selected?
Pakistan's latest bout of anti-government protests has been led by Maulana Fazlur Rehman, an opposition figure who has demanded Khan's resignation ever since the July 2018 election saw his centrist Pakistan Tehreek-e-Insaf (PTI) government come to power. The PTI secured 149 seats in Parliament's 342-seat lower house, handily beating out the 82 seats won by the incumbent center-right Pakistan Muslim League-Nawaz (PML-N) party, as well as the center-left Pakistan People's Party's 54 seats. Rehman's Jamiat Ulema-i-Islam-Fazlur Rehman (JUI-F) party, meanwhile, was left without any parliamentary seats.
But even before the votes were tallied, the opposition began peddling allegations that Pakistan's army — whose latest coup involved toppling Prime Minister Nawaz Sharif's government in 1999 — tilted the playing field to ensure a PTI victory, albeit under a coalition government to prevent Khan from amassing too much power. The opposition has since disparaged Khan as a "selected" (rather than elected) prime minister, whose government doesn't reflect the mandate of the public. Pakistan's opposition has since relied on street power to try to oust Khan's government, which they deem illegitimate.
Khan's Economic Undertaking
In recent months, however, anti-government sentiment in Pakistan has taken on new heights due to the country's crumbling economic situation. In recent years, the Pakistani government has spent significantly more than it has taken in, leading to massive borrowing that has raised debt servicing costs, especially as interest rates went up. Much of this fiscal deficit, however, was racked up by the former PML-N government in the lead-up to the 2018 election. The then-ruling party lavished funds on development projects in the hopes it would create jobs and fuel expansion to secure votes ahead of the polls. But the subsequent spike in government spending only drove up Islamabad's deficit and debt.
Islamabad's fiscal deficit wouldn't have posed such a crisis if it wasn't for its meek revenue generation: While tax revenue grew by close to 3 percent, non-tax revenue fell by more than 16 percent — forcing the Pakistani government to borrow $12 billion in the fiscal year 2018-19. Meanwhile, low interest rates under the PML-N accommodated a consumption-driven boom that led a near-record expansion of 5.5 percent in 2018, a 13-year high. But an unquenchable thirst for imports exacerbated by rising oil prices caused foreign exchange reserves to dip beneath the International Monetary Fund (IMF)'s recommended three-month import cover.
Upon taking office in August 2018, Khan was thus left with a daunting financial mess to fix. To bring Islamabad's fiscal house in order, Khan's government was forced to turn to the IMF for a $6 billion loan in July. The strings attached to the tranche, however, has forced Khan to slash public spending at the cost of his popularity. As part of the loan, the State Bank of Pakistan has allowed the rupee to depreciate against the dollar, while also raising interest rates to 13.25 percent. But inflation has persisted, in part because the government has raised taxes in an aggressive drive to reach an ambitious target of collecting $37 billion in revenue.
Khan's tightening of the government's purse strings over the past year has constrained a key input on the supply-side of Pakistan's economy. And this has, in turn, stilted Pakistan's economic growth, which fell to 3.3 percent during the fiscal year ending in June compared with the previous year's 5.5 percent. The resulting economic pain from Khan's austerity measures has naturally created an opening for the opposition to exploit. And given the economy's expected stagnation in the months ahead, the protesters will have plenty of angst to tap into among the country's increasingly cash-strapped public.
Will History Repeat?
But apart from Pakistan's dire financial forecast, the current surge of unrest is also the result of a system that historically has granted protests an outsized political role. While Parliament is meant to be the supreme decision-making body in the country's democracy, Pakistan's history of military-led coups has instead tilted power in favor of the state's non-elected institutions. This dynamic has long forced opposition parties to use street power to voice their grievances and shape politics from outside Islamabad.
As long as Khan continues to grant political autonomy to Pakistan's influential army, his government's survival is all but guaranteed.
Indeed, back when his PTI party was a member of the opposition, Khan himself led a long march to Islamabad in 2014. Similar to the current protests, his chief demand at the time was the resignation of then-Prime Minister Nawaz Sharif on the grounds that his PML-N party's 2013 election victory was rigged. Sharif waited out the subsequent four-month sit-in until Khan and his followers eventually retreated. But the three-term prime minister's days were numbered after the 2016 Panama Papers detailed his children's overseas assets. This triggered a graft probe that ultimately resulted in his own ousting from office in 2017 and eventually landed him in prison. With Sharif unable to campaign, the path was clear for Khan's PTI party to reap its own electoral victory in the next election in 2018 — and that it did.
The Army: Khan's Lifeline
But as he faces the wrath of his own emboldened opposition, Khan is now experiencing what it's like to be on the other side of the table. Unlike Sharif, however, Khan currently has the support of the army, which has long played the role of kingmaker in Pakistani politics. The army first rose to prominence on a platform of national security following the country's independence in 1947. Then, in 1958, the army launched the first of its many coups that culminated in 33 years of military rule. But even when it's not in direct control, the army maintains an outsized role in politics and policymaking, especially when it comes to Pakistan's complicated ties to Afghanistan and deep-rooted hostility toward India.
As a result, Khan's relations with the army and its current leader, Gen. Qamar Javed Bajwa, will be crucial in ensuring he doesn't follow the same fate as his predecessor. So long as Khan gives the military policy autonomy, including free reign over directing the country's foreign policies on Afghanistan and India, he will maintain a sustainable balance of power to weather the storm. But that, of course, doesn't mean the anti-government protests won't continue to come knocking on his door.
Despite tapping into the country's economic angst, the opposition's calls for Khan's resignation are almost certainly angling for concessions concerning the fate of their leaders, such as a relaxation of Sharif's seven-year prison sentence. And this political motivation, combined with the country's worsening economic situation, means protests will likely continue for months. To project an image of control, the government will avoid the use of force to quell the demonstrations. But as the power of the street faces the power of the state, a violent confrontation between the two cannot be ruled out.
https://worldview.stratfor.com/arti...likely-fail-oust-khan-unrest-economy-politics
- Pakistan's opposition parties have relied on street power to push for the ouster of Prime Minister Imran Khan's government, which they deem illegitimate.
- Fueled by Islamabad's surging fiscal and account deficits, the country's economic crisis has also helped stoke anti-government sentiment.
- As long as Khan continues to grant policy autonomy to Pakistan's highly influential army, however, his government's survival is all but ensured in the months ahead.
The Big Picture
Pakistani Prime Minister Imran Khan largely inherited the deficit crisis now stifling his country's economic growth. But that hasn't kept his political rivals from leveraging Pakistan's latest financial downturn in their push to oust Khan after just a little more than a year in office.
See Pakistan: A Military With a Country
Elected or Selected?
Pakistan's latest bout of anti-government protests has been led by Maulana Fazlur Rehman, an opposition figure who has demanded Khan's resignation ever since the July 2018 election saw his centrist Pakistan Tehreek-e-Insaf (PTI) government come to power. The PTI secured 149 seats in Parliament's 342-seat lower house, handily beating out the 82 seats won by the incumbent center-right Pakistan Muslim League-Nawaz (PML-N) party, as well as the center-left Pakistan People's Party's 54 seats. Rehman's Jamiat Ulema-i-Islam-Fazlur Rehman (JUI-F) party, meanwhile, was left without any parliamentary seats.
But even before the votes were tallied, the opposition began peddling allegations that Pakistan's army — whose latest coup involved toppling Prime Minister Nawaz Sharif's government in 1999 — tilted the playing field to ensure a PTI victory, albeit under a coalition government to prevent Khan from amassing too much power. The opposition has since disparaged Khan as a "selected" (rather than elected) prime minister, whose government doesn't reflect the mandate of the public. Pakistan's opposition has since relied on street power to try to oust Khan's government, which they deem illegitimate.
Khan's Economic Undertaking
In recent months, however, anti-government sentiment in Pakistan has taken on new heights due to the country's crumbling economic situation. In recent years, the Pakistani government has spent significantly more than it has taken in, leading to massive borrowing that has raised debt servicing costs, especially as interest rates went up. Much of this fiscal deficit, however, was racked up by the former PML-N government in the lead-up to the 2018 election. The then-ruling party lavished funds on development projects in the hopes it would create jobs and fuel expansion to secure votes ahead of the polls. But the subsequent spike in government spending only drove up Islamabad's deficit and debt.
Islamabad's fiscal deficit wouldn't have posed such a crisis if it wasn't for its meek revenue generation: While tax revenue grew by close to 3 percent, non-tax revenue fell by more than 16 percent — forcing the Pakistani government to borrow $12 billion in the fiscal year 2018-19. Meanwhile, low interest rates under the PML-N accommodated a consumption-driven boom that led a near-record expansion of 5.5 percent in 2018, a 13-year high. But an unquenchable thirst for imports exacerbated by rising oil prices caused foreign exchange reserves to dip beneath the International Monetary Fund (IMF)'s recommended three-month import cover.
Upon taking office in August 2018, Khan was thus left with a daunting financial mess to fix. To bring Islamabad's fiscal house in order, Khan's government was forced to turn to the IMF for a $6 billion loan in July. The strings attached to the tranche, however, has forced Khan to slash public spending at the cost of his popularity. As part of the loan, the State Bank of Pakistan has allowed the rupee to depreciate against the dollar, while also raising interest rates to 13.25 percent. But inflation has persisted, in part because the government has raised taxes in an aggressive drive to reach an ambitious target of collecting $37 billion in revenue.
Khan's tightening of the government's purse strings over the past year has constrained a key input on the supply-side of Pakistan's economy. And this has, in turn, stilted Pakistan's economic growth, which fell to 3.3 percent during the fiscal year ending in June compared with the previous year's 5.5 percent. The resulting economic pain from Khan's austerity measures has naturally created an opening for the opposition to exploit. And given the economy's expected stagnation in the months ahead, the protesters will have plenty of angst to tap into among the country's increasingly cash-strapped public.
Will History Repeat?
But apart from Pakistan's dire financial forecast, the current surge of unrest is also the result of a system that historically has granted protests an outsized political role. While Parliament is meant to be the supreme decision-making body in the country's democracy, Pakistan's history of military-led coups has instead tilted power in favor of the state's non-elected institutions. This dynamic has long forced opposition parties to use street power to voice their grievances and shape politics from outside Islamabad.
As long as Khan continues to grant political autonomy to Pakistan's influential army, his government's survival is all but guaranteed.
Indeed, back when his PTI party was a member of the opposition, Khan himself led a long march to Islamabad in 2014. Similar to the current protests, his chief demand at the time was the resignation of then-Prime Minister Nawaz Sharif on the grounds that his PML-N party's 2013 election victory was rigged. Sharif waited out the subsequent four-month sit-in until Khan and his followers eventually retreated. But the three-term prime minister's days were numbered after the 2016 Panama Papers detailed his children's overseas assets. This triggered a graft probe that ultimately resulted in his own ousting from office in 2017 and eventually landed him in prison. With Sharif unable to campaign, the path was clear for Khan's PTI party to reap its own electoral victory in the next election in 2018 — and that it did.
The Army: Khan's Lifeline
But as he faces the wrath of his own emboldened opposition, Khan is now experiencing what it's like to be on the other side of the table. Unlike Sharif, however, Khan currently has the support of the army, which has long played the role of kingmaker in Pakistani politics. The army first rose to prominence on a platform of national security following the country's independence in 1947. Then, in 1958, the army launched the first of its many coups that culminated in 33 years of military rule. But even when it's not in direct control, the army maintains an outsized role in politics and policymaking, especially when it comes to Pakistan's complicated ties to Afghanistan and deep-rooted hostility toward India.
As a result, Khan's relations with the army and its current leader, Gen. Qamar Javed Bajwa, will be crucial in ensuring he doesn't follow the same fate as his predecessor. So long as Khan gives the military policy autonomy, including free reign over directing the country's foreign policies on Afghanistan and India, he will maintain a sustainable balance of power to weather the storm. But that, of course, doesn't mean the anti-government protests won't continue to come knocking on his door.
Despite tapping into the country's economic angst, the opposition's calls for Khan's resignation are almost certainly angling for concessions concerning the fate of their leaders, such as a relaxation of Sharif's seven-year prison sentence. And this political motivation, combined with the country's worsening economic situation, means protests will likely continue for months. To project an image of control, the government will avoid the use of force to quell the demonstrations. But as the power of the street faces the power of the state, a violent confrontation between the two cannot be ruled out.
https://worldview.stratfor.com/arti...likely-fail-oust-khan-unrest-economy-politics
