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Pakistan’s Prime Minister Shehbaz Sharif has one advantage over his predecessors as he tries to turn around a stricken economy — the all-powerful military’s desire for change.
Sharif, whose administration secured a much-needed $7bn loan from the multilateral lender last month, has promised painful reforms, such as strengthening tax collection and raising household energy tariffs by a fifth.
Previous governments have made and recanted similar pledges in the face of public opposition. But Pakistan’s military has thrown its weight behind the deal, according to government officials, diplomats, and analysts, fearing that prolonging the economic crisis would deepen instability and threaten its own considerable financial interests.
Islamabad teetered on the brink of default last year, as dwindling foreign reserves and import restrictions sparked shortages of vital commodities. Inflation soared to 38 per cent, stoking widespread public anger.
“The army is backing the IMF programme as they want Pakistan to avoid a default at all costs,” said a senior government official, who requested anonymity. “They consider themselves the main guarantor of Pakistan’s policies as they realise that the politicians with their history of previous failures will not be able to stabilise the economy.”
Pakistan has a mixed record with the IMF. The country has been forced to go to the multilateral lender two dozen times, and serial governments — including Sharif’s previous administration — have abandoned its prescriptions, dishing out energy subsidies or artificially propping up the currency.
This time, Sharif has vowed to quit rather than backtrack on reforms. His government is, however, “not a popular one”, said Bilal Gilani, executive director of pollster Gallup Pakistan, which is unaffiliated with the international pollster.
His administration’s mandate began on shaky ground, having come second in a February election in which candidates loyal to the jailed former prime minister Imran Khan won the most seats but were blocked from power.
As a result, Sharif has not had time to build public support for reforms. Islamabad has unveiled a tax-heavy budget that aims to raise Rs13tn ($46.6bn) by next July, a roughly 40 per cent increase from the current financial year. Authorities have also said they will expand the tax net — which at about 10 per cent is among the lowest in Asia — to more of the agricultural sector, which could trigger a confrontation with the politically powerful farm lobby.
The support of the military, which ruled Pakistan for half its post-independence history, could help his government stay on track and break the cycle of fiscal mismanagement, soaring inflation and spiralling government debt, observers said.
“Shehbaz Sharif has a long, consistent history of good relations with the military,” said Michael Kugelman, director of the Wilson Center’s South Asia Institute, forged during four stints as chief minister of Punjab, the province that is home to most of the army’s top brass. “There’s a strong consensus among the civilian and military leadership that IMF support is essential.”
Muhammad Aurangzeb, the finance minister, told the Financial Times that Islamabad had “no choice but to follow through” on reforms to the tax code, energy sector and lossmaking state-owned enterprises. “As a country, our hand has been forced,” he said. Aurangzeb travelled late last month to China, which is Pakistan’s biggest creditor and has invested about $20bn in energy projects, to discuss reprofiling debt.
Ahsan Iqbal, Pakistan’s planning minister, expressed confidence that the “co-operation between civil and our military institutions” would assuage Beijing and other creditors’ concerns about political uncertainty and a deteriorating security situation, pointing to army chief General Asim Munir’s presence on an investment promotion council, an atypical role for military officer.
“If even political governments change . . . it [the military] provides some strong anchor of continuity,” Iqbal said. Army officers were tapped last week to lead committees tasked with overhauling the power sector and the tax agency.
“They stood at the knife’s edge last year,” said a western diplomat. “Both the Sharif government and the military seem serious about making some hard decisions to . . . keep things from getting that bad again.”
But the military’s ambition for fiscal reform may be limited, analysts and diplomats warned. The UN Development Programme in 2021 described the sprawling networks of army-controlled real estate, food, energy and fertiliser companies as the country’s “the largest conglomerate of business entities”. The new tax code preserved exemptions on property sales by military- and bureaucracy-linked entities, and defence spending is still rising despite paltry public finances, stoking public outrage.
The government has also continued to suppress Khan’s Pakistan Tehreek-e-Insaf party, raiding the party’s headquarters, arresting officials and threatening treason charges.
Sharif’s party “believes its survival depends on the PTI’s failure,” said Madiha Afzal, a fellow at the Brookings Institution in Washington. “It has focused all its energies on repressing PTI, and hoping for Khan and the party’s popular support to wane.”
For now, the military’s backing — and Khan’s continued detention — has limited organised resistance, said Adeel Malik, a professor at the University of Oxford.
But with most of the tax increases set to fall on the salaried middle classes, “who already comply with the tax regime”, he said, “there will eventually be a point where they look for ways to stop complying or take to the streets and protest”.
“This can’t last forever,” he said.
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