September Issue 2014

A day before Independence Day, on the eve of the dharnas announced by the Pakistan Tehreek-i-Insaf (PTI) and the Pakistan Awami Tehreek (PAT) in Islamabad, Finance Minister Ishaq Dar held a briefing on the first year’s performance of the Sharif government. While listing its various achievements, he estimated that the appreciation of the Pakistani Rupee against the US Dollar alone had reduced the size of the external debt by Rs 720 billion and effected a saving of Rs 800 billion by using a US$ 2 billion Eurobond loan to retire expensive debt. He also referred to the massive increase in the capital value of the stock market ever since the new government came to power.

Incidentally, on August 16, the finance minister also held talks with a delegation of the IMF in Dubai for the disbursement of a tranche of US$ 550 million. A joint press conference by the IMF delegation and Ishaq Dar was scheduled for the following day in Islamabad to announce the successful completion of the fourth quarterly review. But as Dar was closeted with the IMF delegation, PTI Chairman Imran Khan announced his ‘Civil Disobedience Movement’ and asked people to stop paying utility bills, taxes and other government dues. An infuriated Dar told a Pakistani TV channel that the IMF delegation members were asking him, “What is happening in your country?” and disclosed that IMF headquarters had advised the delegation against visiting Islamabad. As Dar struggled  to save the talks, Khan told his supporters the following day that Pakistan would decline to pay any IMF loan given to the present Pakistan Muslim League-Nawaz (PML-N) government. That statement was enough to immediately bring the talks to an abrupt end.

“The meetings and discussions held with Finance Minister Ishaq Dar and Central Bank Governor Ashraf Wathra have been useful,” the IMF stated in a press release. “The Government of Pakistan reforms programme was broadly on track till the end of June. The mission made excellent [progress] towards agreement on policy issues going forward. Discussions will be continuing in the coming days via video conference from Washington DC with the aim of securing a timely completion of the fourth review.”

Adding insult to injury, the same day, a ceremony to be held by the World Bank to extend a US$ 750 million loan for Dasu Dam was cancelled at the last minute. Visits by the Presidents of Sri Lanka and the Maldives, and the India-Pakistan Foreign Secretary level talks in Islamabad scheduled for August 26 have also been called off, while a visit by Chinese President Xi Jinping in September is now uncertain.

While thousands of men and women continued to camp out on the streets of Islamabad, the simmering tension took a heavy toll on the country’s economic situation.

According to the Chairman of the Trade Development Authority of Pakistan (TDAP), S.M. Muneer, the direct cost of these sit-ins to the economy amounts to a mind-boggling Rs 150 billion per day, while the indirect cost in terms of changing economic perception and the shift in the power equilibrium could be even higher.

Other estimates of losses from the sit-in in Islamabad are said to be approaching one trillion rupees on August 26. Losses in the capital value of the Karachi Stock Exchange (KSE) stand at around Rs 600 billion, with Rs 80 billion of it  taking place on August 26 alone.

The Pakistani Rupee has lost three per cent of its value since August 14, which means that the stock of Pakistan’s external debt of US$ 60 billion has gone up by at least Rs 180 billion.

Office bearers of the Islamabad Stock Exchange (ISE) said that the estimate of losses to production and the failure to meet export orders are not currently available.  But they pointed out that hundreds of containers have been seized by the Punjab and federal governments. While the Punjab government has offered to pay Rs 2,500 per day per container, the manufacturers and cargo companies owning these containers have refused to accept it.

Technically, the administration was only allowed to seize empty containers and fill them with soil. However the small detail was ignored and the police demanded bribes to allow the containers to unload at the destination and return to the site where it was to be used to barricade roads.

As a result there are shortages of food items in Karachi, export deadlines are being missed, factories in Karachi are starved of raw materials coming from upcountry, and essential items docking at the port and industrial and agricultural output from Karachi and the rest of Sindh cannot go through to Punjab and KP.

But the big picture economic indicators are also getting worse, especially after Khan’s call for civil disobedience against the PML-N government. Since August 8, the KSE-100 index is down by 861 points and US$ 2.25 billion worth of market capitalisation has evaporated. Some PTI supporters in Islamabad and Karachi are dining at restaurants and refusing to pay the General Sales Tax (GST) in response to Khan’s call for a Civil Disobedience Movement. With uncertainty clouding everything, exporters are holding back in anticipation of how this crisis will end.

In addition to the direct damage to the economy, the current crisis has also meant that the fate of several mega development projects promised by Punjab Chief Minister Shahbaz Sharif  now hangs in the balance. His cherished Metro project linking Rawalpindi with Islamabad is now stuck in limbo and Rawalpindi’s main Murree Road and Islamabad’s Blue Area, has been effectively destroyed by the digging of several trenches for the construction of the project, creating a massive traffic and environmental hazard.

“The million-dollar question is not who will build the Metro but who and how the trenches will be filled?” asks Shaikh Rashid Ahmad, member of the National Assembly from Rawalpindi.

During its first year in office, the Sharif government hectically worked on several mega projects that included coal-fired power plants, the Dasu hydroelectric Dam and the Basha Dam, the Pakistan-China economic corridor, the Karachi-Lahore Motorway and the 1,000 Megawatt (MW) solar power plant in Bahawalpur. Gwadar Port is key to the Pakistan-China Economic Corridor. The Chinese Company operating Gwadar Port had scheduled the inauguration of work on additional bays and berths at the port on August 30.

Reports circulating in Islamabad speculated that the Chinese President would initiate work on a new mega project during his visit to Pakistan. But all that is on hold for now. In fact, there are media reports that the whole gamut of mega projects and their financing by China is under review. China had provided Pakistan a US$ 35 billion credit facility to help set up mega projects including coal-fired power plants and hydroelectric projects.

The Business Recorder reported on August 24 that although China had agreed to invest US$ 35 billion, “the thinking at the highest levels is that Pakistan will have to pay back the amount.” Thus instead of extending credit, China was expected to issue Renminbi (RNB) Bonds for projects in Pakistan. It also said that “China was keen to go for more nuclear power plants because of the attractive returns, than local coal-based power plants. Pakistan, on the other hand, was interested in hydroelectric and imported coal-based thermal power plants.”

The Pakistan-China friendship has been termed as an “all-weather friendship.” But given the current political climate in Pakistan, will the Chinese government still go ahead with the construction of new energy projects with a dispensation whose future is presently uncertain?

Whichever way the political crisis is resolved, there is no doubt that it has dealt a severe blow to the country’s already struggling economy. And whoever emerges victorious in the end, will have the unenviable task of picking up the pieces and starting all over again.

This article was originally published in Newsline’s September 2014 issue as part of the cover story.