Following a two-day visit, the group headed by Saudi Foreign Minister Faisal bin Farhan, together with other ministers, concluded what seems to have been a fruitful trip to Islamabad last week.
Economic matters dominated the issues, as was to be expected, especially Saudi Arabia’s potential opportunities in Pakistan. After his journey, Prince Faisal spoke at a joint press conference with his Pakistani counterpart. He also had meetings with the president and prime minister, as well as attending an event involving the military-backed Special Investment Facilitation Council. The prince was upbeat, noting that this nation would soon experience “significant benefits” on economic grounds and characterizing his stay in Pakistan as “productive.”
The relationship between Saudi Arabia and Pakistan is decades-old and complex, but in the last ten years or so, there have been difficulties. For instance, Riyadh disapproved of our choice to remain neutral in the devastating conflict in Yemen. With the benefit of hindsight, parliament appears to have made the right choice because the Saudis are currently attempting to quietly back out of the conflict with the Houthis.
The khan fever which has engulfed the electorate and placed such a burden on the heads of the current authorities may be broken by a liquidity-fueled boom.
However, things are now starting to move after a prolonged period of tremendous unpredictability and political turmoil. There were two events that indicated this. First, there was the visit of Saudi Arabia’s foreign minister, with discussions that appear to have centered on economic cooperation among Saudi Arabia and Pakistan. During the joint news conference held at the end of the visit, the Saudi foreign minister expressed an exceptional amount of optimism about the future of the relationship between Saudi Arabia and Pakistan. The second development is Finance Minister Muhammad Aurangze attending the IMF and World Bank spring meeting in Washington DC.
In all his public appearances, he was quite explicit about the pressing necessity for a replacement IMF program as soon as the current Stand-by Arrangement ended. In addition, he declared that negotiations had started and listed the three primary domains that will be the focus of “structural reforms”: power, taxation, and state-owned businesses. His focus on execution gave the impression that he would follow through on his commitments.
These are two important advances, albeit it is unclear how much of a benefit they will be to the broader public. For the time being, it is evident that the unpredictability and dangerous near-default experiences that characterized the previous two years are finally abating. This does not imply that everything is OK in the nation. One cannot say that a nation is in the clear when it is engaged in negotiations with the IMF over a program. It implies that there is still a great deal of work ahead of you and that failure is highly likely. During one of his appearances in Washington, the finance minister claimed that everyone was aware of the necessary actions.
The execution is the issue. He ought to have been questioned about what stopped earlier administrations from conducting the plans he is outlining and what gives him such confidence that he may succeed where they lost. Sadly, nobody ever asked this question. When he returns, maybe some TV anchors back home will ask him this question. Remember that a nation cannot be in excellent health if it is having difficulty getting into a long-term IMF program. But for the time being, it may be feasible to state that the way forward is becoming apparent without opening any corks or encouraging excessive optimism.
This raises three queries. What is the $5 billion “investment package” that Saudi Arabia is allegedly offering? Exactly how far might the Gulf’s involvement in Pakistan extend, whether it is Saudi or otherwise? Most importantly, will Pakistan benefit from all of this? Or are we just going to tell the same old tale in which the current government borrows or begs dollars from overseas and uses them to fuel the furnace of the nation’s economic dysfunctions to create a brief but exhilarating period of growth that is followed by a catastrophic collapse?
We have told this story twice. First, under Pervez Musharraf, and second, under Nawaz Sharif’s third PML-N government, which ruled the nation from 2013 to 2017. One thing set out both eras: while being part of an IMF program, the nation saw rapid economic expansion. These are two opposite results. Fund programs aim to decelerate the economy in order to facilitate the accumulation of reserves and fiscal buffers. while undertaking deeper reforms.
In these two historical periods, geopolitical prevailed over economics. During the first phase, an economic boom was powered by the post-9/11 jackpot and the inflows that went along with it. To fuel a growth boom that was obviously unsustainable and whose bills would burden the nation for years to come, an elected government in the second period requested extensively from bilateral donors, particularly China and Gulf Arab monarchies.
Nevertheless, this provided the government with enough material to position itself as its party of development and economic growth. It is imperative that this tale not be told again. It is important to avoid the urge to view the potential dollar inflows as catalyst for a brief economic boom, even though there is no certainty that they will materialize anytime soon. Future growth should be driven by the effectiveness of the underlying changes, particularly as far as they facilitate foreign and domestic investment. The khan fever which has engulfed the electorate and placed such a burden on the heads of the current authorities may be broken by a liquidity-fueled boom.
The broader reform program is the key to releasing the economy’s potential, as the finance minister correctly points out. It is appropriate that he emphasizes implementation above interminable policy deliberations. However, his own cabinet colleagues may be the most crucial group to convince of this. The government has stated that it is prepared to move on with the Iran-Pakistan gas pipeline project even though the United States is against the plan.
Islamabad policy pundit and Shahbaz’s administration will have to strike a precarious balance between its neighbors in Iran and Pakistan’s longstanding Saudi supporters. Pakistan has too frequently found itself torn between these two powerful regional powers, even though for most of our history, we have been associated with the Saudi camp. Pakistan must foster positive ties with both states. Specifically, it ought to strengthen its economic connections with Tehran and Riyadh and refrain from engaging in bloc politics.
The writer is a freelance columnist.