Reconsidering US warnings  

Reconsidering US warnings   


Prime Minister Shahid Khaqan Abbasi has said that a US decision to wean off funds to Pakistan will be counter-productive. The statement comes in the backdrop of the recent review of the US policy on South Asia, and is a reflection of the increasingly confident posture Pakistan has been adopting in its relations with the US.

The PM also cited progress in relations with China as a determining factor in US-Pakistan relations. Though, we would advise prudence to all and like to remind that — keeping in mind the joint fight against militancy — drastic actions from either side are likely to be counter-productive.

The US has conditioned aid to Pakistan on progress in tackling the Haqqani network. The US has held that militants associated with the network are Pakistan-based and have carried out attacks inside Afghanistan. This position of the US has already caused bristles amongst the military and diplomatic relations between the two countries. But let us bear in mind that militants of all stripes are a mutual threat to regional peace and prosperity. Pakistan needs to convince the US and regional allies that it is committed to fighting all militants. There is no reason why the government’s claims will be suspected given the sacrifices we have while being on the front line of this war against terrorism.

Anything short of this can lead to immense toll on stability in the region.

Meanwhile, US aid to Pakistan has already reduced to $1 billion in 2016 — a massive decrease from $3.5 billion in 2011. Approaching the elections in 2018, the government faces a precarious economic situation, which may make it reconsider its confident stance with the US.  To avoid pledging to the IMF for a bailout the government is considering its options like reducing imports of luxury goods, boosting exports, and possibly devaluing its currency.

While being drastic, these options may be a better bet from the perspective of marco-economic stability, rather than acquiring another massive bailout from the IMF. However, it will also be important to assess whether the hard way out now may leave the next government in an even greater fix with a balance of payments crisis at a later stage.

Nonetheless, a more durable strategy will figure progress on the tax reforms agenda. If the PM is able to push for these reforms and build confidence amongst taxpayers, we may be able to make up for the current imbalance in the balance of payments.*

 

 

Published in Daily Times, September 13th 2017.