Leading Pakistani Economist on State of Pakistan Economy & CPEC

One of Pakistan’s continuing challenges for the last seven decades has been economic management. Influx of huge amounts of American aid, waiver of Pakistani debts have been buttressed by Saudi largesse, 12 International Monetary Fund (IMF) low-interest loans and high-interest Chinese loans.  However, Pakistan’s economy has yet to achieve stability.

For the last few years there have been those who view the China Pakistan Economic Corridor (CPEC), under China’s Belt and Road Initiative (BRI) as the panacea and way out for Pakistan.

There are others like the IMF and The Economist that have argued that until and unless Pakistan undertakes structural reforms, CPEC will only burden Pakistan with loans it cannot repay.

On the occasion of Pakistan’s 72nd Independence Day, leading Pakistani-American economist, Atif Mian, Professor at Princeton, laid out – in a series of tweets- what are the challenges Pakistan faces and why CPEC is not a simple cure. 

Dr Mian is John H. Laporte, Jr. Class of 1967 Professor of Economics, Public Policy and Finance at Princeton University, and Director of the Julis-Rabinowitz Center for Public Policy and Finance at the Woodrow Wilson School. He has taught at University of California, Berkeley and the University of Chicago Booth School of business.

Professor Mian’s work focuses on the connections between finance and the macro economy. His latest book, House of Debt, with Amir Sufi builds upon powerful new data to describe how debt precipitated the Great Recession. The book was critically acclaimed by The New York Times, Financial Times, The Wall Street Journal,The Economist, and The Atlantic among others.

We have reproduced those tweets below:

“On Pakistan’s Independence Day 2018, why is the country still far from economic independence? (e.g. seeking its largest bail out ever this year). I will focus on last 5 years as an example. It will get a bit technical but I will try to be clear. Economic growth is almost entirely a function of ‘domestic’ productivity growth. What matters is investment in building your institutions and people. Instead Pakistani governments have increasingly looked ‘outside’ in what I would call an attempt at “import-led” growth. It doesn’t work.”

“The idea is to borrow from outside, and task another country with building your infrastructure or institutions, and hope some magic others. The latest example starts in 2013, when PML-N comes to power and decides to outsource growth to China. I will explain why it doesn’t work. “When government funds large infrastructure projects through China’s Belt and Road Initiative (CPEC in Pakistan), the external debt rises from USD 62 to 90 billion. The borrowing raises domestic demand “artificially”, making Pakistan more expensive and less competitive globally. “This is a variant of the famous “Dutch disease” and Pakistan suffered an extreme version of it. Poof? Real effective exchange rate (Pakistani prices relative to trading partners) increased by 20 plus % and total exports did not increase over past 5 years. To make matters worse, Pakistan’s “in-law” finance minister strips away independence of the central bank and sets the terrible policy of keeping the exchange rate appreciated. Now Pakistan has the Dutch disease, on steroids.”

“Meanwhile there is a blanket ban on any objective assessment of CPEC. Ask a question, and you would be accused of conspiring against national interest. Media feeds the frenzy that it is a “game changer” and a big bubble develops in the port city (currently largely sand) of Gwadar. Real estate bubbles further artificially raise domestic demand, & given the senseless exchange rate policy, it makes the Dutch disease sclerotic. Notice we haven’t even gotten into whether the huge borrowing is “sustainable”, the damage is being done before any repayment is due.”

“So let us talk about debt sustainability now. The first thing to remember is, you are borrowing in dollars, while most revenue from the projects are in rupees (think domestic transportation use and local energy consumption). This is a big problem for two reasons. First, the whole enterprise is exposed to exchange rate (ER) risk. A future depreciation of the currency, which is almost certain to happen given the inane ER policy, will jeopardize profitability. Second, the country must generate sufficient additional exports to pay back, or else it will be forced to become poorer in order to generate an export surplus to pay back. This, again, makes things more difficult given the Dutch disease in the first place. Another big question on sustainability is that the borrowing and spending deals are highly opaque. No one really knows what’s going on. For example, what is the cost of capital in CPEC? A loan contract may report a “concessional” rate of 2%. But is it really 2%? Consider this: There is no open bidding and Chinese companies decide everything. They charge USD 100 for equipment, but put in place lower quality equipment worth only USD 80. Guess what, the “true” cost of capital just went up to (2+20)/80=27.5%! There is a lot China and Pakistan can gain from each other. But deals have to be structured properly, with proper macro-prudential framework. Unfortunately, none of that was done. The government wanted a shiny new road real bad before the next election, which they lost anyways.”

Prof Mian ends his thread of tweets with: “Let’s hope for better economic sense this time.”

Pakistan Needs ‘Civilian Supremacy’ for Human Rights

Five days after Pakistan’s dirtiest elections ever, the Human Rights Commission of Pakistan (HRCP) asserted the need for civilian supremacy within Pakistan. The HRCP stated that “a political mandate” was not “an end in itself” and that “political rhetoric alone” would not suffice.

The HRCP urged the new government “to take serious note of the challenges that continue to beleaguer Pakistan’s democratic development” and to address issues like “enforced disappearances, constraints to freedom of expression and association, tainted processes of accountability, lack of respect for the separation of powers, the erosion of independence among institutions, and the shrinking space open to civil society.”

The HRCP stated that “while the conduct of the polls was, overall, orderly and peaceful” both HRCP observers and political parties had lodged complaints “regarding the management of post-poll formalities. Numerous reports that vote counting was poorly handled – with polling agents prevented from observing the final count in many cases – and the unprecedented delay in results have cast a shadow over the electoral process. These questions must be diligently addressed to avoid any doubts concerning the credibility of the elections.”

The HRCP also noted: “The contention that has arisen over reports that polling agents and/or observers were not given a copy of Form 45 – to which they are entitled under the law – needs to be addressed swiftly and convincingly by the ECP. It is difficult to believe that this should have occurred in so many instances solely due to poor management. HRCP’s observers have confirmed similar reports in numerous constituencies, including, among others, Sialkot, Mansehra, Abbottabad, Charsadda, South Waziristan Agency, Kurram Agency, Chiniot, Lasbela, Gwadar, Mastung, Loralai, Panjgur and Quetta.”

The HRCP also referred to the fact that “polling staff relied visibly on security personnel to clarify balloting procedures. The ECP must address this apparent lack of training well before the next elections. In at least three cases, however, the presence of security personnel has borne out HRCP’s original concerns. In NA 24 (Charsadda), security personnel were observed separating ballots into invalid and valid votes. In NA 21 (Mardan), they intervened when observers attempted to ask the presiding officer about the ongoing polling. Observers at one polling station in Islamabad report that security personnel demanded that women voters show them their stamped ballots. The principle of vote confidentiality cannot be compromised in this way and HRCP maintains that the presence of security personnel inside polling booths is the thin end of the wedge.”

Imran Khan: Is the Optimism justified? Optimism on Pakistan, specially of some including New York Times, Has Repeatedly Turned Sour in Past


The New York Times recently wrote an extremely optimistic piece on Prime Minister elect Imran Khan.The NYT Editorial referred to Mr Khan as “A New Batsman for Pakistan” and asserted that he had led “his political party to an equally impressive victory in Pakistan’s national elections.”

The NYT opined that Pakistan had “reached a turning point that could possibly alter its dysfunctional trajectory.” Noting that Imran Khan brings “more star power and mystique than any recent Pakistani leader and perhaps a better chance to change the country’s narrative” the NYT stated that he “could use his fame and charisma to reset Pakistan’s troubled relations with the West.” While admitting that the elections were “widely considered tainted” the NYT admitted that “many parts of the country are safer today than they were a few years ago” and that Imran would help the country because “he’ll visit foreign capitals and business titans, seeking help to solve Pakistan’s dire debt crisis and bring in investors.”

The NYT is a rare semi-optimistic Opinion piece on Imran Khan but then the NYT also wrote this glowing praise of Nawaz Sharif’s victory in 2013. Then NYT had spoken of Sharif “once a political exile deposed by the military” returning to “the cusp of power” and “taking a commanding lead in a parliamentary election in which Pakistanis braved Taliban intimidation to cast ballots with historic prospects for the country’s democracy.” Further, the Times noted a “record turnout in several cities, incited by an energized political campaign.” Speaking about “vibrancy of Pakistani politics” and that these elections “evoked a rare sense of enthusiasm for politics in Pakistan.”

In 2008 the New York Times spoke about the “crushing defeat” sustained by former military dictator General Pervez Musharraf’s party by the Pakistani electorate, the “resounding victory of the two parties [PPP and PMLN]” and “signaled a change in direction after eight years of military rule.”

Imran Khan has a huge burden to overcome as he is taking over power amidst allegations of rigging and being viewed as the sponsored ‘favorite’ of Pakistan’s military intelligence establishment.

Every few years both Pakistanis and the international community raises its hopes and expectations about Pakistan and these hopes are dashed. Why is it that this optimism is dashed every time?

Pakistanis in general and their sympathizers outside need to examine this. Maybe the reason is there is a naïve belief that change in the Chief Executive is all that Pakistan needs to rectify its problems and challenges. That the only thing lying between a prosperous Pakistan is a corrupt politician and once you bring in someone new things will change automatically.

But maybe something else is wrong!

For example, why cannot the military retreat from politics and let the politicians make decisions?

Also, why is it that every civilian politician is accused and removed from power on the grounds of corruption?

Why cannot Pakistan have normal relations with all its neighbors: India, Afghanistan and even Iran?

If Imran Khan can address these fundamental questions then Pakistan will come out in a better place.

If, however, Imran cannot address these questions then there will only be a re-run of the past.

‘A Rigged Election does not confer a mandate’

In Pakistan’s third elections since 2018, there have been widespread complaints by political parties, civil society and international media of rigging on a large scale. All day long there were reports of violence, allegations of pre-poll manipulation and the arrangements put in place by the Election Commission of Pakistan.


Both PML-N and the PPP “said their monitors in many voting centers had not received the official notifications of the precinct’s results, but instead got hand-written tallies that they could not verify. “It is a sheer rigging. The way the people’s mandate has blatantly been insulted, it is intolerable,” Shehbaz told a news conference as the counting continued. “We totally reject this result,” he said. “It is a big shock to Pakistan’s democratic process.” The PPP also complained that its polling agents were asked to leave during the vote count in a number of voting centers.

“This is the warning bell of a serious threat,” said PPP senator Sherry Rehman. “This whole election could be null and void, and we don’t want this.”


The Election Commission of Pakistan, however, delayed announcing the final results stating  “counting had been delayed by technical failures in an electronic reporting system and the tallying was now being conducted manually. The results had been due by 2 a.m. (2100 GMT). “There’s no conspiracy, nor any pressure in delay of the results. The delay is being caused because the result transmission system has collapsed,” Yaqoob said. Chief Election Commissioner Sardar Mohammad Raza later defended the process after Sharif’s party and at least four others contesting the elections alleged the counting was manipulated. “These elections were 100 percent transparent and fair,” Raza said. “There is no stain. Why don’t you think the five political parties might be wrong?”


The Guardian in its report titled “Widespread allegations of election rigging,” pointed out that three major Pakistani parties, the Pakistan Muslim League-Nawaz, Pakistan People’s Party and Muttahida Qaumi Movement, have all “alleged voting irregularities, including that polling agents were not allowed into polling stations and voters were not given forms on time. The run-up to the election has also been plagued by widespread allegations that the powerful military was working behind the scenes to skew the contest in cricketer-turned-politician Imran Khan’s favour. His main rival Nawaz Sharif, who was jailed on corruption charges this month, has long had tense relations with the military and accuses the military of orchestrating his conviction.

Muttahida Qaumi Movement-Pakistan (MQM-P) leader Faisal Sabzwari said election officers aren’t providing certified election results and have thrown polling agents out during ballot counts.”


The Human Rights Commission of Pakistan (HRCP) in a statement noted: “that the ECP’s performance leaves much to be desired. While the latter has carried out its clerical functions reasonably well, the political content of its work has fallen short of expectations. Polling schemes were poorly rationalized, with many voters in the Lahore Cantonment, for instance, indicating they did not know where to go to vote. Numerous observers have also reported that many polling stations were clustered together, but too small to cater to the number of voters. As a result, the polling process remained sluggish through the day. This, compounded with ill trained staff in many cases, meant that many people who reached their polling station in time were compelled to queue outside the premises for want of space, but were not let in to cast their vote.


The HRCP also took “received complaints through the day that, in many areas, women were not allowed to vote: HRCP hopes that legal action is taken against any such people who denied women their right to vote. The Commission also notes that, in some places, polling staff appeared to be biased toward a certain party, with voters who had received slips from another party’s stall being turned back on flimsy grounds. In at least one instance, women voters reported being asked whom they intended to vote for. Such instances are serious contraventions of the law and HRCP hopes that these will be promptly and transparently addressed.”

Dirtiest election in Pakistan’s history?

Are these the dirtiest elections in Pakistan’s history or is the world conspiring against Pakistan? If one were to believe international media, Pakistani analysts and even the Human Rights Commission of Pakistan then yes. On the other hand, if one were to go solely according to the press conferences and statements of the state apparatus then all is well.
For the last few days every single international media outlet has spoken about these being Pakistan’s dirtiest elections.
According to The Guardian, the campaign season has been “marred by allegations of military interference,” deadly violence and allowing extremist and sectarian groups and leaders to run for elections.
According to The New York Times the deep state has “cast a shadow” on Pakistan’s elections through its “soft coup,” censorship and intimidation tactics. “That military campaign has been likened by some candidates to a soft coup, and has included sidelining candidates who are out of the military’s favor, censoring major news outlets and persecuting peaceful political movements.
According to the NYT, the reason for Nawaz Sharif’s ouster and the reason why the military is trying to ensure his party does not win many seats in the upcoming elections is: “As prime minister, Mr. Sharif ran afoul of the military early on by trying to assert control over foreign and defense policy, which is seen as the army’s domain. He also tried to improve ties with India, Pakistan’s archrival, and opposed the military’s embrace of terrorist groups, members of his party say.”
The NYT quoted analyst and author Ahmad Rashid: “The question the whole nation is asking is what does the army want and why this level of interference? For the first time, not just the elite, but the public is now aware of the army’s major role. It’s now talked about at the village level.”