‘Hybrid' narrative

Business Recorder

3 days ago

EDITORIAL: The stakeholders' narrative gaining traction on airwaves and the print media is that the hybrid system, rooted in ground realities, has made significant strides in all areas of governance — particularly foreign relations and the economy.
Pakistan's relations with the West have improved markedly, however, it would be folly to deny the considerable influence of the Trump administration's deviations from previous US-led policies (fully supported by the European Union) that are attributable to the US President's entirely different policy thrust with respect to dealing with Russia and China, continuing to be joined at the hip with the genocidal policies of Israel, and, last but not least, the primacy of tariffs in forging trade deals with countries around the world.
In this context President Trump's success in forging a ceasefire between India and Pakistan (subsequent to our indisputable win over the skies) and his lunch invitation to COAS Field Marshal Asim Munir, much to the chagrin of Indians, are certainly foreign policy coups that must be appreciated. Prime Minister Shehbaz Sharif's nomination of President Trump for the coveted peace prize no doubt generated goodwill in the White House though the sentiment in this country was dampened after the Israeli Prime Minister Netanyahu nominated President Trump for the same prize. These improved ties have not been at the cost of our long-term friends — China, Saudi Arabia and the United Arab Emirates — with reports suggesting that China had extended tacit support to our foreign policy initiatives.
However, one would hope that the Foreign Office had duly deliberated on the Armenia-Azerbaijan peace deal signed in Washington DC, before announcing support.
The Zangezur Corridor, a 43-kilometre road from Azerbaijan to Nakhchivan Autonomous Republic through Armenia, has been given to the US on a 99-year lease. This would link Azerbaijan to Turkey and beyond to Europe — a move opposed by Iran as it has been credibly reported that some Israeli strikes on Iran were from Azeri territory, and by Russia that fears that US control of the corridor may compromise its influence in the south Caucasus with the possibility of becoming a geopolitical and possibly military hotspot like Ukraine.
On the economic front, however, the narrative remains under challenge on three counts. First, while the trade deal with the US reduced the threatened 29 percent tariffs on our exports to 19 percent yet the claim that we are at the most advantageous position in our region has little traction as no other country has yet agreed to US tariffs and the two major regional countries — China and India — unlike the European Union continue to resist succumbing to US demands that they have stated are unfair and unjustified. Second, foreign direct investment (FDI) pledged by the US in the trade deal has yet to bear fruit, and additionally two years after the establishment of the Special Investment Facilitation Council (SIFC) FDI has remained elusive with the latest data uploaded on the Finance Division website was USD 1.8 billion in July-June 2025 against USD 1.96 billion in the comparable period the year before.
Portfolio investment suffered negative USD 650.9 million outflows in 2025 as opposed to negative USD 383.8 million in the comparable period the year before. In other words, more work is required to make a success of the SIFC, which allows for one forum where all possible impediments to FDI can and are being resolved. In addition, the reliance on rollovers has not yet abated with USD 16 billion in the current year with the foreign exchange reserves lower at USD 14.5 billion.
The overarching focus of the economic team leaders is on a massive reduction in inflation and a current account deficit that is under control; however, what is being ignored is the rise in poverty levels in the country, 44.2 percent as per the World Bank, and an untenable unemployment rate of 22 percent, indicators that may well have the seeds of socio-economic unrest that, as per the IMF, could well derail the ongoing programme's reform efforts.
The IMF programme conditions accepted by the economic team continue to be under implementation which are neither pro-poor nor pro-growth — as they are severely contractionary and include: (i) monetary policy — the decline in the discount rate from 21 to 11 percent maybe significant but no economist will define 11 percent as not being severely contractionary; and (ii) fiscal policy with the existing indirect taxes raised and/or widened to generate revenue rather than to reform the tax structure by reducing reliance on indirect taxes whose incidence on the poor is greater than on the rich. In-house out of the box policies are required to ease the rising pressure on the pressure cooker of public opinion.
Copyright Business Recorder, 2025