Nawaz can’t mess around with Modi

Pakistan's 195 million people should be praying that a recent Dawn report that spoke of Prime Minister Nawaz Sharif issuing an ultimatum to the powerful military to stop shielding terror elements, is true to every word. However, Sharif's office discarded the report as a work of fiction. We don't know the truth behind the Dawn report, but for Pakistan, it's better if there is an element of truth to it.

The reason: Only a course correction can save the Pakistani economy from falling into deeper economic troubles.There is a strong economic rationale for Pakistan to live on good terms with its neighbour and not escalate tensions with the Modi government. Engaging in a full-fledged war with India that could deeply damage its already-fragile economy will result in the exacerbation of deeper socio-economic issues of poverty and unemployment.

Until now, Sharif has failed to make such an impression before the international community. Remember his Burhan Wani comment? According to the Dawn report, Sharif is believed to have warned that a failure to do so could result in Pakistan's isolation internationally. Sharif's new-found realisation, assuming that there is some truth in the Dawn report, must have emerged from his reading that Pakistan might be walking straight into a deadly pit, if it antagonises India beyond this point.To understand this, one needs to first take a close look at both economies.

Although Pakistan poses itself as no less than India, the truth is that only its rumoured nuclear prowess is worthy of any comparison with India. Pakistan's economy is a pygmy compared with that of India, and it is facing a tough phase. Pakistan's foreign exchange reserves were at $23.6 billion in September compared with India's $371 billion reserves at the same time.

Total merchandise exports of India currently sit at $262 billion, while those of Pakistan are a mere $21 billion. India's external debt to GDP ratio is now at 23.7 percent, while that of Pakistan is at a high 64.8 percent.A full-fledged war with India could greatly damage Pakistan's economy. The country would not be able to withstand the immediate economic impact, while India is in a much better position economically.

Sharif's ability to face such a scenario — an economic emergency is a great doubt. In fact, the country is already is fighting a crisis with near-empty coffers. A 15 February Bloomberg report said Pakistan is fighting an external payment crisis. “About 40 percent of Pakistan’s outstanding debt — both local and foreign — is due to mature in 2016, according to data compiled by Bloomberg.

Sharif took a $6.6-billion International Monetary Fund loan in 2013, which pushed up Pakistan’s external debt by 79 percent. This debt is up for repayment by the end of this year. Already, Pakistan has seen a visible decline it foreign remittances. According to a September 22 editorial published in The Express Tribune, exports are on a continuous downward slide and remittances have started to slow down with foreign direct investments down 53 percent in the two-month period of July and August over the previous year." So, that's the Pakistan economy in a nutshell.

Now, what are the repercussions of messing with India beyond this point given Pakistan's current economic state? The immediate jolt will be international isolation both economic and political — and that will leave Pakistan heavily reliant on China, its only major partner at this stage. But, it is no secret that the Chinese have clear interests in increasing their economic hold in that country to strengthen its own regional position. International isolation isn't just a theory any longer for Pakistan. It is already happening. If the US joins the Pakistan isolation camp, it wouldn't be long before others join.

Pakistan economy's dependence on China to improve its fortunes is so high that a recent World Bank report warned that Pakistan's prospects of growing even at a modest five percent a year are at risk due to delays in the implementation of the $46-billion China-Pakistan Economic Corridor (CPEC) projects. Also, the decision of a majority of SAARC countries to pull out of the Islamabad meet, expressing solidarity with India, is a major signal. Within SAARC, Pakistan will have no friends given India's dominant position as an economic power. Sharif probably knows the potential downsides of this scenario.

Geographically too, Pakistan cannot survive on its own if India resorts to extreme measures such as cutting short river water supply to Pakistan, thereby diluting the spirit of the 1960 Indus Waters Treaty. Over the years, a series of terrorist attacks on Indian soil, including the Mumbai terror attacks, Pathankot and Uri have exposed the existence of non-state actors thriving on Pakistani soil with the active aid of the Pakistani military. They have also demonstrated the inability of the State to keep such elements. The political leadership under Sharif probably realises that if it doesn't act now, the State will find itself in a deeper mess in a future that isn't too distant.

If Sharif manages to convince the army of the dangers in continuing to aid terrorists on Pak soil, he'll be remembered as the prime minister who dragged the failing State back from the precipice of an economic disaster. (With data support from Kishor Kadam) (This article was first published at http://www.firstpost.com. Reprinted with their permission)

By:Dinesh Unnikrishnan