Imran Khan’s bounce back and the stringent conditions of Pakistan’s renegotiated IMF bailout signal a political churn
22-07-2022
Two significant developments pertaining to Pakistan over this past week have the potential to impact the country in diverse ways, whether that be the direction in which its inconsistent and fragile polity is headed, or the character that socio-economic disaffection at the gross mismanagement of the economy takes, or, indeed, how the equations of the Pakistani people and their political leadership with the hitherto dominant military establishment shifts course. The telling victory of recently ousted Prime Minister Imran Khan’s political party, the Pakistan Tehreek-e-Insaf (PTI), at the 17 July by-elections in the most populous and crucial province of Punjab owed quite a bit to the unpopularity of some of the tough economic measures that the hapless Prime Minister Shehbaz Sharif was forced to impose on an already burdened population in order to meet the demands imposed by the International Monetary Fund (IMF) for a bailout package that is seen as a lifeline for the despairing Pakistani economy.
The IMF’s expectations of Pakistan linked to the bailout package are only likely to fuel further anger at the incumbent government as the already unbearable inflation hits even higher levels and energy shortages become more acute. This fury could translate into the 17 July by-elections being just a foretaste of what could happen in the general elections due in Pakistan in October 2023, but which could actually be held much sooner. Ever since his ouster in April, Imran Khan has held massive public rallies across the country demanding that early elections be held. Those demands are going to become much more forceful after his party’s victory in Punjab, which has long been a bastion of the Pakistan Muslim League – Nawaz (PML-N) of Shehbaz and his older brother, the three-time former PM Nawaz Sharif. The spectre of Imran returning to power in Islamabad is also raising questions about how civil – military relations are going to pan out after the recent accusations and strong statements that Imran has been making against the powerful military establishment. The establishment, which had used Imran Khan to topple Nawaz Sharif and had made him the PM before a fallout occurred, would not be comfortable with Khan remaining a powerful force despite their best efforts at sideling him. The Generals would be aware that this would only add to the political uncertainty that has embroiled the country, and that their predominance may also come under closer scrutiny.
At the other end of the world, the United States (US), which Khan has accused of directly plotting his downfall, would also be looking on with interest at the maverick ex-cricketer’s possible political resurgence. In a series of rallies that have attracted tens of thousands of people in recent weeks, Khan has accused the US and the Pakistani military establishment of orchestrating a conspiracy to topple his government. US officials and the military have both denied these accusations.
The Punjab by-elections were called after members from the PTI were disqualified for switching allegiance in a vote to elect Shehbaz Sharif's son Hamza as the Chief Minister of Punjab. Hamza Sharif’s short term in office now looks set to end after the PTI won 15 of the 20 seats contested in the by-elections, thereby giving the PTI and its alliance partner a majority of 188 seats in the provincial legislature of 371. The PML-N-led coalition, which secured only four seats, now has the support of 179 members. The new Chief Minister is to be elected by the house tomorrow, and reports suggest that the PTI-backed candidate Chaudhary Parvez Elahi is the frontrunner.
Punjab has often served as a bellwether for national politics, and Imran Khan seems to have the wind in his sails. Following the by-election results, he asserted in a tweet "The only way forward from here is to hold free and transparent elections. Any other way will only lead to increased political uncertainty and further economic chaos”. BBC News quoted the well-respected Pakistani analyst and commentator Cyril Almeida as saying that Imran Khan has had a one-point agenda since his ouster – fresh elections as soon as possible. Almeida added, "Now it's within his grasp. They may try and limp on…but the government is now effectively at Imran's mercy". The New York Times quoted Madiha Afzal, a fellow at the Brookings Institution, as echoing his words. She said, “The PTI has demonstrated that it has mobilized real support in the wake of the vote of no-confidence against Khan, while the ruling coalition has haemorrhaged support. The ruling coalition will have to fundamentally rethink its strategy and approach and perform well on economic indicators to have a shot at the next general election”. BBC also quoted Pakistani journalist and analyst Benazir Shah as making the important point that the Punjab result clearly shows that the PTI is in the ascendency as "Imran Khan was able to secure this victory for his party without the help of the military; without businessmen, who previously funded his electoral campaigns; and without having any major electable candidates (who have dependable vote banks) in his camp". She, nevertheless, cautioned against interpreting the Punjab by-election results as a bellwether for rest of the country.
The by-elections were equally as much a litmus test for Sharif’s government in Islamabad. The ruling coalition has struggled to gain popular support amid a collapsing economy, even if much of the responsibility for the present economic mess precedes their four months in office. The PML-N sought to put up a brave front after its defeat and congratulated Imran Khan for a “landslide victory” in the by-polls. The Prime Minister’s spokesperson Malik Ahmad Khan said that “We respect the mandate of the people. Now we ask the PTI-PMLQ to form the government in Punjab”. To a question about whether Shehbaz would dissolve the National Assembly to call early general elections, he responded that “The PML-N leadership will decide about it in consultation with its allies”. Maryam Nawaz, the PML-N Vice President and daughter of party supremo Nawaz Sharif, added that “The PML-N should accept the results of the by-polls with an open heart and concede to the decision of the masses. We will see our weaknesses and remove them”.
The seasoned politician Nawaz Sharif hit the nail on the head when he blamed the "difficult decisions" taken by the government for the electoral loss. The by-election results suggest that voters in Punjab wanted to send a message to the country's leaders about the economic hardships they were facing. Pakistan is reeling from unprecedented inflation and energy shortages. To meet IMF conditions for a resumption of a $7.2 billion aid package, Sharif was compelled to remove subsidies on fuel, effectively raising prices by more than 50 percent in less than two months. Amid inflation that has reached its highest level in 14 years, he also had to raise electricity rates and increase fuel prices, all of which have adversely affected the average Pakistani’s finances. Nusrat Javeed, a veteran journalist and political analyst based in Islamabad, pointed out that “Not all of this is Mr. Sharif’s fault. His government is facing the brunt of an accumulated mess of all previous governments”. But for most voters, Javeed said, what mattered is that since April, “long hours of power outages are back, petrol has gone out of reach, and electricity prices are constantly being increased”.
Pakistan newspapers have also suggested that the Punjab results were a consequence of the economic hardships currently being felt by the country, which is spending nearly half its income to service dire foreign debt. An illustrative headline in the influential Dawn newspaper read – “A bitter taste of unpopular decisions”. Salman Masood and Christina Goldbaum noted in an 18 July article in The New York Times that “Since taking office, Mr. Shehbaz’s government has had to walk a fine line balancing the tough measures needed to get the economy back on track with his party’s need to retain popular support ahead of the next general elections”.
The IMF bailout program for Pakistan was announced in 2019, but it was later suspended after Imran Khan’s government failed to meet some of the loan conditions such as cutting energy subsidies. Like his predecessor, Sharif had been reluctant to enact some of the fund’s key demands, fearing public backlash that could hurt his party’s chance of success in the next general elections. However, with Pakistan’s foreign currency reserves falling dangerously low in recent weeks, Sharif’s government relented, and to avoid a default like Sri Lanka’s it introduced a series of tough economic measures to meet the IMF demands. As Dr. Amjad Magsi of the South Asia Study Centre of the Punjab University summarized, “People had hoped that the PML-N government would provide them relief from the ‘wrong’ economic decisions taken by the PTI government. But, instead, the Shehbaz government aggravated their economic affliction by blindly following the IMF. The present rulers popularised Imran Khan’s narrative by taking the anti-masses, unpopular, decisions and that too after weeks of confusion and reluctance that accelerated the economic meltdown. Politically, it was more suited for them to go for new elections soon after Khan’s ouster from power rather than owning the unpopular decisions of the last PTI government”.
Sharif’s government, however, got some relief last week following an agreement with the IMF to resume the stalled rescue package. “The Agreement with the Fund has set the stage to bring country out of economic difficulties”, Sharif wrote on Twitter. The IMF in a 13 July statement assessed that “Pakistan is at a challenging economic juncture. A difficult external environment combined with procyclical domestic policies fuelled domestic demand to unsustainable levels. The resultant economic overheating led to large fiscal and external deficits in FY22, contributed to rising inflation, and eroded reserve buffers… High international prices, and a delayed policy action worsened Pakistan’s fiscal and external positions in FY22, led to significant exchange rate depreciation, and eroded foreign reserves”. The statement informed that “IMF staff and the Pakistani authorities have reached a staff level agreement on policies to complete the combined 7th and 8th reviews of Pakistan’s Extended Fund Facility (EFF). The agreement is subject to approval by the IMF’s Executive Board”. It further said that “The immediate priority is to stabilize the economy through the steadfast implementation of the recently approved budget for FY23, continued adherence to a market-determined exchange rate, and a proactive and prudent monetary policy. It is important to expand social safety to protect the most vulnerable, and accelerate structural reforms including to improve the performance of state-owned enterprises (SOEs) and governance”.
Funds from the IMF are expected to help avert a potential default and pave the way for more aid from other multilateral institutions and friendly nations. Pakistan needs at least $41 billion in the next 12 months to repay debts and fund imports in a situation where foreign-exchange reserves have shrunk to a level that could only cover less than two months of imports.
As important as the IMF bailout is for Pakistan, analysts nevertheless warn that Sharif’s government will face a difficult political test in implementing IMF-driven belt-tightening. Lower and middle-income voters have already been the worst stung by the deteriorating economic situation compounded by the additional measures that Sharif has had to put in place. Sakib Sherani, a former adviser to the Pakistani Finance Ministry, believes that while Pakistan’s return to an IMF programme “distances the country from a Sri Lanka-type situation”, the likely increased difficulty of providing a safety net for low-income people was one of “several undesirable consequences” of the deal. Cyril Almeida, on the other hand, is of the view that the Punjab result has essentially "driven a stake through the IMF deal". He added, "Had the PML-N won, the government would have been looking towards hikes in the rates of electricity. Instead, the markets have dipped on the back of obvious uncertainty". He further opined that if Imran Khan's team gets back into office, they may even seek to renegotiate the PML-N’s deal with the IMF that itself was a renegotiation of an existing PTI deal. "The economy will remain in deep trouble", he concluded.
Salman Masood and Christina Goldbaum in their article in The New York Times argued that the election results were as much a reaction to the worsening economic conditions as they were a repudiation of the powerful Pakistani military establishment. They underlined that Imran Khan had accused the Inter-Services Intelligence (ISI) of meddling in the election process, and that during campaign speeches over the past few weeks he would often claim that “Mr. X”, a code name he came up with for the provincial ISI chief, was trying to rig the elections. On Twitter, PTI supporters have heaped unprecedented criticism and ridicule at the Army Chief General Qamar Javed Bajwa, who was once considered to be a Khan supporter. The anti-military rhetoric is a distinct shift for Imran Khan, who ascended the political ranks with the support of the establishment. His victory in the 2018 general elections was widely attributed to a back-room deal struck with the military.
The Diplomat, prior to the polls, had postulated that the Punjab by-elections would present Imran Khan the first major opportunity to test run his anti-establishment narrative at the polls. It had said, “For months, PTI chairman Imran Khan has belligerently targeted the country’s military leadership for its alleged role in orchestrating a no-confidence vote against his government in the parliament. To this end, Khan’s party has run a brutal media campaign to not only defame the military’s leadership but also undermine the ruling coalition and its support base. This is the same narrative that Khan’s candidates have taken to voters in their campaigns in the upcoming by-elections”. The results of the by-elections would suggest that at least for now Khan’s anti-establishment ploy seems to have paid off.
Whether this will graduate into a fundamental realignment of power between the political leadership and the establishment remains to be seen, but what is already evident is that more serious questions are being asked of the establishment’s dominance now than they ever were in Pakistan’s recent history.
