With a stagnant economy, Pakistan needs to focus on citizens' welfare

It’s been a month since the Pahalgam attack. India subsequently responded with precise targeting of terror camps in Pakistan and Pakistan-occupied Kashmir. It also responded effectively to Pakistan’s military escalation, inflicting significant damage on its military assets before both sides agreed to de-escalate. India’s response has clearly set a higher threshold for action against Pakistan-backed terrorism. This has sparked a debate on whether India’s response — both kinetic and non-kinetic — will deter Pakistan, and for how long. 

Security analysts have offered several explanations for the motive behind the Pahalgam attack. Apart from aiming to disrupt the return to normalcy in Jammu & Kashmir, Pakistan possibly wanted to escalate tensions with India for both external and internal purposes. Externally, with practically no relevance in global affairs, it wanted to raise what it calls the Kashmir issue and attract global attention. Internally, tension with India can help both the civilian and military establishments garner public support. It’s worth recalling that the army played a key role in the formation of the present government after destabilising the Imran Khan government and putting him in prison. Pakistan is also facing internal security challenges in Balochistan and Khyber Pakhtunkhwa. However, its biggest problem is the nearly stagnant economy. Escalating tensions with India may have been a ploy to divert attention from this issue as well. 

The economic battle: Since most analysts don’t follow the Pakistani economy, International Monetary Fund (IMF) and World Bank publications are a good starting point to get a broad sense. Given its dependence on IMF support, which recently tightened conditions, here are some observations from the IMF’s 2024 country report:  “...Pakistan’s vulnerabilities and structural challenges remain formidable. A difficult business environment, weak governance, and an outsized role of the state hinder investment…while the tax base remains too narrow to ensure tax fairness, fiscal sustainability and meet Pakistan’s large social and development spending needs.” Highlighting the structural challenges, it further notes:  “In 1980, Pakistan had higher per capita GDP (PPP terms) than many regional peers, but its living standards have since fallen behind.” (GDP is gross domestic product, and PPP stands for purchasing power parity.) The reversal reflects misplaced priorities. The period coincides with its support for insurgency in India and elsewhere. 

A recent World Bank publication on Pakistan has similar observations. The opening sentence of its executive summary could not have been more precise: “After decades of volatile low growth and low investment, Pakistan has fallen behind its peers in key metrics of development.” One clear indicator of its socio-economic condition is its birth rate: At 3.4 births per woman, Pakistan has the highest in South Asia. As the World Bank further notes: “Macroeconomic mismanagement over the past years has led to fiscal and external imbalances, a growing debt burden, and an erosion of external buffers.” Pakistan has a serious external financing problem. Its foreign exchange reserves can barely support two months of imports. 

In terms of macroeconomic management, while the inflation rate has now come down, consumer prices increased by nearly 30 per cent in 2022-23 and about 23 per cent in the following year. According to IMF data, GDP per capita in nominal US dollar terms in 2024 was roughly the same as in 2015. Thus, there has been nearly no income growth for about a decade. The GDP itself has been fairly volatile. Pakistan’s GDP in nominal dollars at $337.75 billion in 2023 was lower than the $348.48 billion recorded in 2021. Its total foreign debt is worth over 30 per cent of GDP. In 2023-24, the total estimated external debt was about 13 times its foreign exchange reserves. 

Any low-income county with a near-stagnant economy and a rapidly growing population should be focused on the well-being of its citizens. Plans to create trouble in a much bigger country with one of the largest economies in the world should not figure in the list of priorities. But unfortunately, Pakistan is not a normal country. There are many historical reasons why it is the way it is, including its very foundation. One of the defining features of Pakistan is the dominance of the army. Implicitly or explicitly, the country is controlled by the army. 

In a low-income country, there will always be competing demands for resources. Therefore, the army uses India as a threat to corner resources. It’s another matter that its policies and preferences have created real security challenges that the Pakistani security establishment is finding difficult to handle. According to data from the Stockholm International Peace Research Institute, published by the World Bank, Pakistan’s defence expenditure in 2018 was 3.6 per cent of GDP, which came down only marginally to 2.8 per cent in 2023. Its government has reportedly approved an 18 per cent increase in defence spending in the next budget. 

Given Pakistan’s fragile polity and the insecurity of its ruling elite, it is reasonable to assume that it will not give up its anti-India approach in the foreseeable future. Even though India is perfectly capable of defending itself, it should continue to work on improving internal security and defence preparedness. Rawalpindi’s actions over the years have only been harming the average Pakistani citizen.