By Michael Roberts
[Editor: As this article is posted, and half of the votes are counted, it looks like Imran Khan’s PTI party will win the most seats in parliament, if not an outright majority. Whatever the precise outcome – and it looks like the result is being challenged – this article provides and invaluable background to the election]
Pakistan has 200 million people and 105m of them were registered to vote in Wednesday’s general election. This makes it the fifth largest democracy and second largest Muslim democracy in the world, after Indonesia.
Who won? Well, it seems that voter turnout was unchanged from the last election in 2013, at just 53%. So the ‘no vote’ party was the biggest winner. But a relatively new party has won the most seats in the National Assembly. This is Pakistan Tehreek-e-Insaf (PTI) or Pakistan Justice Party, led by Imran Khan, a former international cricketer (the sport inherited from British colonial rule and godlike in the Indian sub-continent, Muslim and Hindu alike).
Khan’s party has defeated Nawaz Sharif’s Muslim League. Sharif was the former prime minister of Pakistan before he was convicted of corruption. Sharif’s family came under judicial scrutiny over the Panama Papers. After disqualifying Sharif from holding public office the Pakistan courts was sentenced him to jail and he absented himself to the UK. Just before the election he came back to Pakistan to start a 10-year jail sentence. This martyrdom, as he sees it, was designed to increase the chances of an election victory for his party now led by his brother. But this risky move appears to have failed.
Pakistan is one of the most unequal countries in the world. Just 22 families control 66% of Pakistan’s industrial assets and the richest 20% consume seven times more than the poorest 20%. Both the names Khan and Sharif mean ‘ruler’ or ‘noble’. According to a 2013 study, 45% of all holders of office across Pakistan came from family ‘dynasties’, moving from one party to another with bewildering rapidity, with their political direction decided by whom the military establishment selects.
Khan has won because he had campaigned for several years on ‘fighting corruption’, for which the previous two main parties of government, the Muslim League and the Pakistan People’s Party, PPP, (led by the Bhutto dynasty), were notorious. The anti-corruption message has won over sufficient voters, mainly middle class. Khan appealed to this layer as a more ‘secular’ candidate (not surprising considering his personal affairs).
Although, the PTI’s support comes from the urban middle classes, in the election he aligned his party with smaller extreme religious parties, in order to try to gain a majority, stepping back on equality and ‘social’ issues. Moreover, he is regarded as the new favourite of the military, which wishes to continue its policy of backing the Taliban in Afghanistan and allying Pakistan with China against India. China is now Pakistan’s largest foreign investor.
Khan is not sympathetic to the working class
Khan claims he wants to ‘depoliticise’ the police and establish ‘law and order’ in a violent, crime-ridden society; to ‘improve health and education’ through bringing health insurance to 70% of the population. Yet in no way is Khan sympathetic to the interests of Pakistan’s working class or rural farmers. He is set to follow the dictates of the IMF as the ‘solution’ for Pakistan’s continuing economic failure. And that means his policy ‘aspirations’ will never be met.
The reality is that Pakistan’s stuttering economy is entering yet another period of slump and crisis after a short boom. The IMF’s last report reckoned that Pakistan was growing at 5-6% a year. But this was only being achieved by cheap money policy from the central bank, fiscal spending and a rising current account deficit.
Foreign exchange reserves have fallen to just 2.3 months of imports as the authorities tried to support the currency despite the deteriorating economy. The trade deficit and upcoming debt repayments will double external financing needs, taking a further toll on foreign exchange reserves. Pakistan will soon require an IMF funding package to pay its way, and with it, will follow yet another period of ‘austerity’.
Although there has been some improvement in human development indicators in Pakistan since 2010, youth enrolment in higher education and skills training remains very low. In health, stunting is chronically high among children under five years of age, with 44% in this age group being either severely or moderately stunted. A large proportion of the population still does not have access to piped water at home or toilets linked to a sewage system.
Rich pay little or no tax
There is little in public funds available to deal with these problems because the rich pay little or no tax. Less than 1% of the country’s working population file income returns. Of the 72,000 or so firms registered in 2016, less than half filed returns, and of those that did, half paid no tax at all. Pakistan aims to increase tax collection to 15% of GDP by 2020. But growth in direct taxes is actually slowing because of a sustained reduction in corporate taxes. Most taxes are indirect i.e. through consumption purchases, which hit the poor the most.
Investment by the capitalist sector is just 11% of GDP (and falling), with another 4% from the public sector. This compares with China at 45% or even most less developed countries at over 20%. Most income held by the rich goes into real estate and financial assets (much of it spirited abroad).
Exports make up just 7.6% of the country’s GDP. That’s nearly 17 percentage points less than the average for middle-income countries overall. What the country does export tends to be low-value-added products, like cotton and rice. Pakistan is the 115th most competitive nation in the world out of 137 countries ranked in the 2017-2018 edition of the Global Competitiveness Report. As a result, Pakistan relies on an ever-decelerating flow of remittances and outside funding, which makes it highly susceptible to external shocks.
As Khan takes over (with the military behind the scenes) Pakistan is facing another balance of payments crisis. The Pakistan rupee is diving as a result as Foreign exchange reserves run out.
Without Chinese investment and funding, a crisis would already be upon the Pakistan economy. The China-Pakistan Economic Corridor (CPEC) is a collection of infrastructure and trade projects, valued at up to $63bn. It has become the centrepiece of China’s $1 trillion-plus Belt and Road Initiative (BRI). From shoddy ports and expressways to inefficient power plants, the Chinese-funded CPEC aims to resolve many of the shortcomings that have stifled Pakistani manufacturers. The flow of loans to Pakistan has surged since 2015.
All this means that the Pakistan ruling elite must choose between the IMF for future funding or rely on the ‘goodwill’ of China.
Over to you, Imran Khan.
July 26, 2018
First published on Michael Robert’s blogsite:
