The Key Foreign Policy Challenges for Pakistan’s New Government

Mian Muhammad Shehbaz Sharif who was sworn as Pakistan’s Prime Minister on April 11, 2022 clearly has his task cut out in terms of resolving the country’s economic challenges as well as mending Pakistan’s relations with the US and EU — which have exhibited a downward slide in recent weeks. In a meeting on April 14, 2022 with senior officials, Sharif asked his team to devise a strategy to put the country’s economy back on the rails with a specific focus on controlling inflation. According to an Asian Development Bank (ADB) report, Pakistan’s economy is likely to grow at 4% in 2022 (as compared to 5.6% in the previous year), while the World Bank has forecasted a slightly higher growth rate (4.3%) for the year 2022. The key priorities for Sharif are keeping inflation in check and preventing a further deterioration of the debt situation. Rising oil prices as a result of the Russia-Ukraine crisis have proved to be a major setback for the country’s economy (petrol products accounted for over 20% of the country’s total import bill in 2020-2021). Last month, days before the ouster of Imran Khan’s Pakistan Tehreek-E-Insaaf government (PTI) global rating agency, Moody’s had projected that Pakistan’s current account deficit, for the period July 2021 to February 2022 would be $12 billion in contrast to $1 billion for the same period in the previous year.

The rating agency also said: “We now expect the deficit to widen to 5-6% of GDP in fiscal 2022 (ending June 2022) compared withour previous forecast of 4%. This further widening will put greater pressure on Pakistan’s foreign reserves, which declined to $14.9 billion as of February 2022 from $18.9 billion in July 2021, according to IMF data, sufficient to cover only around two months of imports.”

Both the US and EU were unhappy with Former Prime Minister Imran Khan’s stance on the Ukraine issue (Khan landed in Russia a day before Putin’s invasion of Ukraine). Khan, who lost the no confidence motion on April 10, 2022, blamed the US along with opposition parties for plotting his downfall. Khan pointed to a memo sent by the US which said that US-Pakistan relations would deteriorate if he continued as Pakistan PM. Both opposition parties and the army were uncomfortable with Khan’s criticism of the West. In his address, on April 2, 2022 at the Islamabad Security Dialogue, the Pakistan Army Chief Qamar Javed Bajwa said that Pakistan shared ‘long and excellent ties’ with the US, and Islamabad wanted to keep a balanced foreign policy.

If one were to go by Shehbaz Sharif’s address after becoming PM, it is clear that he is likely to give priority to ties with China and Saudi Arabia. China, in the past has praised Shehbaz Sharif for his efficiency and delivery on important infrastructure projects related to the China-Pakistan Economic Corridor (CPEC), even coining the word ‘Punjab speed’ and ‘Shahbaz speed’. A report in the Global Times stated that ties with Pakistan would only improve under a Pakistan Muslim League (Nawaz) PML-N government in Pakistan pointing to Shehbaz Sharif’s  commitment to give a further push to CPEC. While a lot has been said about Imran Khan’s Anti-West posture it would be pertinent to point out, that Beijing was not particularly happy with the pace of CPEC projects during the PTI government. In August 2021, Lieutenant General (retd) Asim Saleem Bajwa  was replaced as CPEC Authority Chief with Khalid Mansoor who was designated as Special Assistant to the Prime Minister on CPEC Affairs. 

Sharif is also likely to focus on strengthening ties with Saudi Arabia — a traditional ally of Pakistan. The Sharif family shares close relations with the Saudi royal family (the Saudis had played an important role in ensuring safe passage for Former PM, Nawaz Sharif after he was removed in a coup in October 1999). While Saudi Arabia did provide assistance to Pakistan to reduce pressure on its foreign exchange reserves in 2018, ties went downhill after Pakistan expressed disappointment with the Organisation for Islamic Cooperation (OIC), chaired by Saudi Arabia, for not taking a strong stance against India’s announcement to revoke Article 370 in Jammu and Kashmir. In 2021, Saudi Arabia again provided a loan of $3 billion to Pakistan.

Ties with US and EU are important from an economic stand point. The Financial Action Task Force (FATF) review of Pakistan’s status is due in June, 2022 and both US and EU play a crucial role. EU is an important destination for Pakistan’s exports, especially garments and textiles. The US is also an important destination for Pakistan’s exports. General Bajwa had made a reference to this point during his speech at the Islamabad security dialogue saying that US was ‘Pakistan’s largest export market. Pakistan’s negotiations with the IMF are also likely to resume. Both sides had signed an agreement for a $6 billion loan over a period of 39 months under the Extended Fund Facility (EFF).

Sharif who has to manage a disparate coalition, referred to as Pakistan Democratic Movement (PDM) and has limited political capital is unlikely to take any big ticket steps vis-à-vis normalization of ties with India. In his first speech after being elected as PM, Shehbaz Sharif while expressing his commitment to improvement of ties with India, also referred to the Kashmir issue as an impediment with regard to normalization of bilateral relations between both countries. Indian Prime Minister Narendra Modi congratulated Sharif, Modi in his tweet referred to the need for ‘a region free of terror’, while Sharif responded by saying that outstanding issues between both countries including Kashmir needed to be addressed.

As Chief Minister of Punjab (2008-2013 and 2013-2018), Sharif had pitched for greater people to people linkages  between India and Pakistan in particular and both the Punjab’s in particular and stronger trade relations via the Wagah-Attari land route. Given some of the developments in the past few months; the re-opening of the Kartarpur Corridor after over a year and a half and other steps taken to give a fillip to religious tourism and the reconciliatory statements from the Pakistan army, there is a possibility of resumption of trade. Pakistan’s first National Security Policy released in January 2022 also laid emphasis on improving ties with India including in the economic sphere. 

Even Imran Khan had given a go ahead to import of sugar and cotton in 2021, but at the last moment this decision was reversed. Business lobbies in Pakistan as well as India (especially Punjab) have been batting for the resumption of trade given that Pakistan has been importing essential commodities such as sugar and wheat from other countries at much higher rates.

In an interview with senior Indian journalist Karan Thapar, Senior PML-N leader Mushahid Hussain Syed said that while Pakistan could not put the Kashmir issue on the side, there was scope for progress between both countries on the 3C’s – Commerce, Cricket and Culture.

Shehbaz Sharif’s foreign policy is likely to be driven by Pakistan’s economic interests, and ties with Beijing and Riyadh will be given utmost priority. With the West, Sharif has to keep Pakistan’s economic interests in mind while also not giving an impression that he is kowtowing to the US. In the context of India-Pakistan ties, people to people links could broaden and the resumption of trade is a possibility, but realistically no big initiatives/steps are likely given Sharif’s domestic priorities and constraints.

[Photo: Shehbaz Sharif,  via Wikimedia Commons]

The views and opinions expressed in this article are those of the author.

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