Pakistan’s Disunion Puts Investment at Risk

Originally produced on Dec. 4, 2017 for Mauldin Economics, LLC

By Kamran Bokhari

Jihadism has been radiating out of Pakistan for decades and causing problems for the country’s relationships with other governments. Lately, however, it’s been Pakistan itself that is suffering from its homegrown Islamism. The country was founded on a contradiction between secularism and Islamism, and though it has covered up its incoherence, it has never overcome it. The contradiction is finally catching up to the country, and things in Pakistan will get worse before they get better.

Warning Signs

Evidence that things in Pakistan are reaching their boiling point came, paradoxically, from the outside. A Nov. 22 report by a Pakistani daily said that a Chinese delegation visiting Pakistan had expressed concerns that political instability could adversely affect the tens of billions of dollars that China was investing in the South Asian nation. The report said that on Nov. 21, a joint committee on the China-Pakistan Economic Corridor—part of China’s One Belt, One Road initiative—approved the broad parameters of a long-term plan for the CPEC but failed to agree on development projects and financing for special economic zones. Speaking to reporters after the meeting, a Pakistani minister who serves as the country’s point man on the CPEC acknowledged that political unrest since 2014 was undermining the mega-development project.

Pakistan has grown more unstable since the United States invaded neighboring Afghanistan after 9/11. In fact, over the past decade, Pakistan has been the target of a vicious jihadist insurgency that has claimed as many as 80,000 lives. Yet the Chinese still went ahead with the CPEC in 2013. Four years later, China, usually a stalwart ally, is beginning to second guess its investment plans for Pakistan.

Meanwhile, Pakistan’s relations with its historical ally, the United States, have also hit an all-time low.The incoherence in Islamabad is preventing the country from working effectively with the US to address common concerns about the insurgency in Afghanistan. The top American commander in Afghanistan said Nov. 28 that he had not seen a change in Pakistani support for Afghan militants even though the administration of President Donald Trump has taken a tougher line against Islamabad. US Defense Secretary James Mattis is currently visiting the Pakistani capital, where he has said he will try “one more time” to work with Islamabad before taking “whatever steps are necessary” to address its alleged support for Afghan militants.

India, Pakistan’s archrival, has expressed its own concerns about Islamist militants operating from Pakistan. In 2008, terrorists from Pakistan carried out one of the worst attacks in India’s history, killing 164 people and wounding over 300 more in Mumbai. Under intense pressure from India and the US, Pakistan vowed to crack down on Jamaat-ud-Dawah, the group responsible for the attack.

Almost a decade later, however, Jamaat-ud-Dawah is more entrenched than ever in Pakistan. It recently formed a political party, and its founder and leader, Hafiz Muhammad Saeed, was released from house arrest on Nov. 23. The United Nations Security Council designated Saeed a terrorist in December 2008, but his political movement has only gained ground in Pakistan, and Saeed himself recently announced his intention to run for public office in next year’s elections.

Finally, Pakistani relations with Iran have also been tense. Iran, which shares a border with Pakistan, has been the target of Islamist militancy emanating from sanctuaries in Pakistan’s southwest. Iran has warned Pakistan several times over the past few years that it will conduct raids across the border in Pakistan if Islamabad does not rein in anti-Iran groups on its soil. Already it has shelled groups across the border.

Political Decay

Pakistan has been incoherent since its inception in 1947. It has never settled the debate over whether it ought to be a secular or an Islamist state. Tensions have only gotten worse since the 2011 assassination of Punjab Gov. Salman Taseer at the hands of his own bodyguard. Taseer’s killer said the governor was guilty of blasphemy for criticizing laws prohibiting individuals from speaking out against religion. Many Pakistanis deemed the assassin a hero, and a team of lawyers enthusiastically defended him. It took the state five years to convict and execute him for the murder. The assassination and trial spawned an entire social movement and is now represented by a new political party, Tehreek-e-Labaik Pakistan.

In early November, Tehreek-e-Labaik Pakistan organized a sit-in at the capital to protest a perceived softening of the government’s stance on blasphemy. The army was finally called in on Nov. 26 to broker a deal, and in the end, the protesters got what they wanted. But even the military, which has ruled Pakistan intermittently for close to half of the country’s 70-year history and is still its strongest institution, can’t control what’s happening to the country.

Pakistan, moreover, used to boast a two-party political system that has since devolved into a patchwork of ideologically rigid groups, many of which are Islamist or otherwise right-wing. One such party is Pakistan Tehrik-e-Insaf, led by cricketer-turned-politician Imran Khan. PTI is itself not an Islamist party, but its allies are Islamists. The party is likely to benefit in next year’s federal election from a major corruption scandal that has weakened the current ruling party, the Pakistan Muslim League, and forced its leader, Nawaz Sharif, to step down as prime minister. But whether Islamists or secularists control the government, the fight for Pakistan’s soul will not go away.

Neither will its economic struggles. Pakistan’s foreign exchange reserves hover around $14 billion, enough to cover only about three months’ worth of imports. Its reserves are falling because its exports are falling. Debt servicing stands at 29% of export earnings. Markets are speculating about a depreciation of the Pakistani rupee. And Pakistan’s population is exploding. It exceeded 200 million people this year, according to a 2017 census, and has increased by 57% since the last census nearly 20 years ago. At the same time, educational standards have been declining, with the literacy rate down to 58%. A third of the population lives in poverty.

For Pakistan to recover, it needs outside investment to fund things like the China-Pakistan Economic Corridor. But to secure such investment, the country must overcome the present situation, where multiple powerful factions have paralyzed the government.