Economic and foreign policy under Imran Khan

Not much is in his hands

PM Khan’s political party made big promises as part of its electoral campaign to revive Pakistan’s dying economy. However, beyond rhetorical promises, there are limits to what the new government can do to put the country’s economy back on track.

PM Khan’s economic policy is not much different than the previous government, as structural handicaps don’t allow any civilian government enough space to take radical shifts. One of the major handicaps is Pakistan’s sprawling debt trap, decreasing exports and dead domestic economy. Pakistan virtually has no money to do anything beyond even managing its regular financial needs. The situation has been made worse by Washington’s pressure on Islamabad in terms of cutting civilian and military aid to the country.

In immediate terms, the current government is looking to raise badly needed funds to assist Pakistan’s depleting foreign exchange reserves. Pakistan needs a minimum of $10 to $12 billion to keep the country’s imports afloat and its bills. On the other hand, the government is also working to cut on cut down on different import areas which are not strategic and can reduce the foreign loan pressure add some value to the government finances. Moreover, the government plans to increase the overall tax collection like the previous government and aims to take away some of the subsidies which were offered to the middle and poor class by the previous government. In the medium term, the government is looking to have enough finances to build the domestic economy but it remains to be seen if and how it will work out with the country deep in debt. One of the good things about the current government’s approach about the economy is that PM Khan is willing to bring in professionals to form a long-term policy to deal with structural handicaps that continue to defy Pakistan’s economic growth. However, for that, Khan should remain in power for some time and one can argue that’s what the military also wants as they fear Pakistan’s economic crisis may become a serious threat to their own institutional stability if the issue is not addressed strategically.

In immediate terms, the current government is looking to raise badly needed funds to assist Pakistan’s depleting foreign exchange reserves. Pakistan needs a minimum of $10 to $12 billion to keep the country’s imports afloat and its bills.

In terms of foreign and security policy, not much is likely to change in Khan’s government. The country’s powerful national security institutions occupy much of the space in this domain. Islamabad’s relationship with Washington is not going to see any change in Khan’s government: the relationship is in a pretty bad shape due to Washington and Islamabad’s inability to align their interests in the region. With China, Pakistan’s relationship will see a deepening of economic and security ties. Some of the recent statements by the civilian government’s representatives regarding reviewing the CPEC agreements saw the military sending out statements offering reassurance to Beijing about its commitment to the economic project. With Iran, the government is interested in improving economic and security ties. One of the reasons that Pakistan didn’t have a better relationship with Iran over the last few decades was due to Washington’s pressure and Islamabad’s ties with Riyadh. With Pakistan drifting away from Washington, Tehran’s ties with Islamabad are expected to improve in the coming months and years. Riyadh may not be averse to Islamabad’s rapprochement with Tehran as the former is expected to share and take into account the latter on this development, which is mostly driven by growing international economic pressure rather than Pakistan going away from Riyadh.

While Pakistan has made an effort to engage India under the new government, which according to some reports reflects the military’s desire to engage the country, it is unclear whether both countries can enter the phase where they can talk about major issues that keep Pakistan and India in conflict mode. For now, some confidence-building measures would suffice and apparently that is what both countries are trying to do. Pakistan and India recently participated jointly in a counter-terrorism exercise in Russia. The Indian government while interested in talking to Pakistan is concerned about the elections which are coming next year and any misstep while talks are taking place with Pakistan may hurt the BJP domestically. If the intent of Pakistani national security institutions remained focused on reconciliation with India, we may see some major developments within the next couple of years. However, the situation at the LoC remains a challenge and if any major incident happens across the LoC, it may reverse all efforts of building trust, which is essential to move to the next stage of opening main talks.

Pakistan’s ties with Afghanistan will remain tense as there is no end to violence in sight and the Afghan Taliban are not likely to give up on their insurgency campaign. Pakistan’s policy of approaching Afghanistan is not likely to change. However, it does not mean that Pakistan controls the group as it has been suggested and remains one of the reasons for Washington’s pressure on Islamabad.

In general, Pakistan relationship with different domestic and foreign non-state actors under Khan’s government will not change much from what the national security institutions deem essential and Khan is unlikely to really stand in their way to gain some space back.