Imran Khan Government's Midterm Review: Economy and Foreign Policy

Imran Khan's government has completed about half of its 5-year term it won in 2018. What are its accomplishments? Where has it failed in terms of economy and foreign policy. 

Economy:

Imran Khan inherited a serious balance of payments crisis cased by flat exports and record high imports in 2013-2018 period under Pakistan Muslim League (Nawaz) government. while the PTI government was still dealing with it, the country and the world were hit by COVID19 pandemic that devastated the global economy. 

Pakistan's Trade July2020-Jan2021. Source: Arif Habib

The 2019 International Monetary Fund's bailout required the PTI government to significantly devalue the Pakistani rupee to make exports competitive, and to raise interest rates to slow down imports. These actions triggered inflation, particularly food inflation, as energy and fertilizer prices rose. 
Export Growth in South Asia. Source: Wall Street Journal

The global COVID19 pandemic hit Pakistan and the world while the PTI government was still trying to stabilize the economy. The global economy slowed down as a result of lockdowns imposed around the world to slow the spread of the novel coronavirus. It impacted South Asian economies but Pakistan was thankfully spared the worst of it. 
Pakistan Vehicle Sales 1H FY20-21. Source: Arif Habib

Now Pakistani economy is finally stabilizing and a strong recovery is underway. The recovery is led particularly by the construction and manufacturing sector as evident from double digit increases in cement consumption and large scale manufacturing growth. 

Cement Sales in Pakistan. Source: Bloomberg

Foreign Policy:

One of Pakistan's key foreign policy successes is the US-Taliban Peace Deal. But now there is uncertainty surrounding it with the inauguration of President Joseph Biden. Biden's election and the growing rivalry between US and rising China have changed the calculus in South Asia and the Middle East regions, impacting Pakistan. Former President Trump's erratic behavior has also contributed to it. 

Based on Biden's record as Obama's vice president, it is expected that the new US president will continue to support a stable Pakistan. A suggestion that has been made by former State Department officials Shumaila Chaudhry and Vali Nasr is for the US to take advantage of Pakistan's free trade deal with China by setting up value-added re-export units in the country. 

Please watch this discussion with Faraz Darvesh as host and Dr. Owais Saleem, Sabahat Ashraf and Riaz Haq as panelists:

https://youtu.be/Cse9j72H1cU

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Comment by Riaz Haq on February 22, 2021 at 10:06am

#IMF on #Pakistan #economy: " The external current account improved, due to stronger-than-expected remittances, import compression, and a mild export recovery. High-frequency economic data also started to point to a recovery" #COVID19 #Exports #PTI https://www.imf.org/en/News/Articles/2021/02/16/pr2141-pakistan-sta...


IMF staff and the Pakistani authorities have reached an agreement on a package of measures to complete second to fifth reviews of the authorities’ reform program supported by the IMF Extended Fund Facility (EFF). The package strikes an appropriate balance between supporting the economy, ensuring debt sustainability, and advancing structural reform. Pending approval of the Executive Board, the reviews’ completion would release around US$500 million.
The COVID-19 shock temporarily disrupted Pakistan’s progress under the EFF-supported program. However, the authorities’ policies and allowing higher than expected COVID-related social spending, have been critical in supporting the economy and saving lives and households.
The Pakistani authorities remain committed to ambitious policy actions and structural reforms to strengthen economic resilience, advance sustainable growth, and achieve the EFF’s medium-term objectives.
An International Monetary Fund (IMF) team led by Ernesto Ramirez Rigo, concluded virtual discussions with the Pakistani authorities and reached a staff-level agreement on the second to fifth reviews of the authorities’ reform program supported by the IMF 39-month Extended Fund Facility (EFF) arrangement for the amount of SDR 4,268 million (about US$6 billion (press release 19/264). This agreement is subject to the approval of the IMF’s Executive Board. The reviews’ completion would release around US$500 million. At the end of the discussions, Mr. Ramirez Rigo issued the following statement:
“The policies and reforms implemented by the Pakistani authorities prior to the COVID-19 shock had started to reduce economic imbalances and set the conditions for improving economic performance. Most of the targets under the EFF-supported program were on track to be met. However, the pandemic disrupted these improvements and required a shift in authorities’ priorities towards saving lives and supporting households and businesses. To a large extent, the authorities’ response was enabled by the fiscal and monetary policy gains attained in the first nine months of FY2020. Aside from health containment measures, this included a temporary fiscal stimulus, a large expansion of the social safety net, monetary policy support and targeted financial initiatives. These were supported by sizeable emergency financing from the international community, including from the Fund’s Rapid Financing Instrument (RFI).

“As result of the authorities’ actions, the COVID-19 first wave started to abate over the 2020 summer and the impact on the economy was significantly reduced. The external current account improved, due to stronger-than-expected remittances, import compression, and a mild export recovery. High-frequency economic data also started to point to a recovery. Considering these improvements, the economy is projected to expand by 1.5 percent in FY2021 from the -0.4 percent in FY2020. Still, with the COVID-19 second wave still unfolding around the world, the outlook is subject to a high level of uncertainty and downside risks.

Comment by Riaz Haq on February 22, 2021 at 10:40am

#Chinese firm Challenge Apparel plans $150m #industrial park in #Lahore to lift exports. It's already operating since 2017 with its #garment manufacturing unit on Multan Road near Lahore fetching nearly $44m in export revenue during the last fiscal year

https://www.dawn.com/news/1608516

A Chinese company is investing $150 million in an industrial park on Lahore’s border with Kasur, which will house state-of-the-art fabric units, dyeing facilities and garment manufacturing units for exporting sportswear from Pakistan. — Reuters/File
LAHORE: A Chinese company is investing $150 million in an industrial park on Lahore’s border with Kasur, which will house state-of-the-art fabric units, dyeing facilities and garment manufacturing units for exporting sportswear from Pakistan to the Americas, Europe, Asia-Pacific and other regions of the world.

The project by the Shanghai-based Challenge is probably the first foreign direct investment (FDI) in an export industry in Pakistan. The firm is already operating as Challenge Apparel since 2017 with its garment manufacturing unit on Multan Road near Lahore fetching nearly $44m in export revenue during the last fiscal year, according to its managing director Chen Yan, who is known in the government and business circles as Karen.

She expects exports from her existing facility to grow to $54m this fiscal year. Once the Challenge Fashion Industrial Park becomes functional from July next year, its sportswear exports from Pakistan are projected to grow to $120m in the first year and to $400m in the next few.

The largest Pakistani textile exporting company’s exports stood at less than $300m last year.

“Our total production is meant for export,” Chen told Dawn in an interview. “We’re bringing modern, most-efficient and environment-friendly technology to Pakistan from across the world besides introducing new ways of management at our new flagship industrial park. Our plan is to make Pakistan the hub for our polyester-based sportswear exports. Our Chinese operations in Shanghai and Hubei have customers like Adidas and Reebok who’re willing to come to Pakistan if we’ve capacity here. We’ll bring Pakistan new business. We’re a different breed and our product line is new for Pakistan.”

Currently, the company employs around 3,000 workers, including 28 Chinese nationals. Once the industrial park becomes fully functional, the company would have created nearly 10,000-11,000 new jobs.

Challenge’s exports from China stand at $150m. Its garments manufactured in China are sold at an average price of $20. Compared to that, its Lahore operation fetches an average unit price of $8-9, which is double the average unit price of around $4 fetched by Pakistani garment companies.

“This difference in unit price isn’t about value-addition; this is all about the quality of the fabric. Fabric is the key to higher unit prices. You can charge customer whatever you want if you can give them high-end product,” Chen said. The Pakistani cotton-based garments attract lower unit prices because of poor quality of short-staple local cotton, she said. “Even a cotton product can sell for $100-200 if made from finer cloth produced from long staple fibre.”

Challenge entered the Pakistan market in 2014 when it invested $47m in a joint venture with Masood Textiles, a major exporter from Faisalabad. But the venture couldn’t last long as the company bled money profusely and the Chinese investor decided to relocate to Lahore as an independent company.

Comment by Riaz Haq on February 22, 2021 at 1:08pm

Masterplan for $10 billion #Pakistani oil city, including #Saudi #ARAMCO #refinery, to be ready by year-end. The Oil City will be developed on 88,000 acres of land in the #Gwadar district of #Balochistan. #CPEC #China #SaudiArabia #economy #energy https://www.arabnews.com/node/1812721/business-economy


Officials: Investment in province “could increase per capita income to $15,000 by 2025”
The $10 billion Aramco Oil Refinery is expected to take five to six years from inception to commissioning
GWADAR: A masterplan for Pakistan’s largest oil city, including a $10 billion Aramco oil refinery project, is underway and expected to be ready before the end of the year, Pakistani officials said this week.
The proposed mega oil city will be developed on 88,000 acres of land in the Gwadar district of the southwestern Balochistan province to refine and process petroleum products mainly imported from the Gulf region, for local and regional consumption.
“The planning for the mega oil city which will host an Aramco refinery and petrochemical complex is in progress, and we will take six to seven months to complete the masterplan,” Shahzeb Khan Kakar, director general of Gwadar Development Authority (GDA), told Arab News.
During a 2019 visit by Saudi Crown Prince Mohammed bin Salman, Saudi Arabia and Pakistan signed seven investment deals worth $21 billion. The deals covered mineral, energy, petrochemical and food and agriculture projects, and involved players such as Aramco, Acwa Power and the Saudi Fund for Pakistan.
The $10 billion Aramco Oil Refinery — with a 250,000-300,000 barrel per day capacity — is expected to be commissioned in about five to six years.
The project will have a $1 billion petrochemical complex that will lay the foundations for Pakistan’s petrochemical industry by producing polyethylene and polypropylene.
“Though the federal government is directly dealing with the Saudis, we will invite them after the planning is completed,” Kakar said, adding: “The oil city is equally big as Gwadar. We have made the masterplan of Gwadar as a smart city with an area of 88,000 acres, keeping in view requirements up to 2050.”
Apart from the oil city, Gwadar authorities are also developing an industrial zone expected to be completed by 2023 that will also attract significant investment in the area.
“Industrialization is expected to start from 2023 with the provision of basic utilities, including electricity,” Attaullah Jogezai, managing director of the Gwadar Industrial Estate Development Authority, told Arab News.
Gwadar has been touted as the “crown jewel” of the multi-billion dollar China-Pakistan Economic Corridor.
Through the development projects backed by Saudi and Chinese investment, the GDA chief forecast that the per capita income of Gwadar will surge to $15,000 by 2050.
“Fisheries, an oil refinery, petrochemical complexes, a shipyard, the tourism industry, and most importantly the operations of Gwadar port, will all generate huge incomes and increase per capita income,” Kakar said.
“This can be achieved by providing electricity, protection and a sound management system.”
Authorities developing a 300 MW coal-fired power plant and a 5 million gallon per day desalination plant say both projects will be functional by January 2023.
“Regulations have been framed to allocate lands in the industrial zone,” Manzoor Hussain, additional secretary of industries for Balochistan, told Arab News, adding: “Now land will be allotted only to those industrialists who will set them up within the given time frame.
“Our mission is to create employment in the province.”

Comment by Riaz Haq on February 22, 2021 at 4:13pm

Number of #COVID19 cases in #Pakistan drops dramatically, down to 1,329 new #infections reported yesterday. Total number of active cases has dropped to 24,466. https://www.dawn.com/news/1608730

Comment by Riaz Haq on February 22, 2021 at 4:32pm

A recent report by the Pakistan Business Council (PBC) titled “Enhancing the Competitiveness of Pakistan’s Refrigerator Industry” provides a valuable insight in this regard (exports markets). The local labour-intensive refrigerator industry that caters to 98 per cent of domestic demand by utilising 75-80pc capacity hasn’t been able to break into the export market. The said report dissected the costing and regulatory duty framework to conclude that the biggest hurdle in entering the export market is neither expensive power nor high dependence on imported raw material. Rather, it was the limited volume of production and Pakistan’s low economies of scale.

https://www.dawn.com/news/amp/1608620


-------------

No big boost in exports is expected till Pakistani manufacturers reorient their business model and target achieving scales to integrate effectively in the global supply chain.

They might also need to build agile organisations to quickly restructure and reconfigure market strategies to compete for a bigger share in the international market.

The perception that the private sector of Pakistan lacks capacity and capability can’t be true as it did prove its mettle by competing and breaking the stronghold of multinationals in the domestic market when it chose to. Thirty years back, multinationals ruled the drug market in Pakistan. Today, the local pharmaceutical industry commands the lion’s share in the domestic medicine market.



---------------


No big boost in exports is expected till Pakistani manufacturers reorient their business model and target achieving scales to integrate effectively in the global supply chain.

They might also need to build agile organisations to quickly restructure and reconfigure market strategies to compete for a bigger share in the international market.

The perception that the private sector of Pakistan lacks capacity and capability can’t be true as it did prove its mettle by competing and breaking the stronghold of multinationals in the domestic market when it chose to. Thirty years back, multinationals ruled the drug market in Pakistan. Today, the local pharmaceutical industry commands the lion’s share in the domestic medicine market.


A recent report by the Pakistan Business Council (PBC) titled “Enhancing the Competitiveness of Pakistan’s Refrigerator Industry” provides a valuable insight in this regard. The local labour-intensive refrigerator industry that caters to 98 per cent of domestic demand by utilising 75-80pc capacity hasn’t been able to break into the export market. The said report dissected the costing and regulatory duty framework to conclude that the biggest hurdle in entering the export market is neither expensive power nor high dependence on imported raw material. Rather, it was the limited volume of production and Pakistan’s low economies of scale.

‘We have removed most of the impediments. We are witnessing excellent growth in industry and exports,’ says Abdul Razak Dawood

It is not surprising, therefore, that over the past decade, the contribution of the manufacturing sector to GDP has been hovering in the range of 12-14pc, which is the lowest in the region. The huge trade deficit (where export earnings were barely one-third of import spending) speaks of the poor show of the corporate sector in the global marketplace. The PTI government did succeed in containing and narrowing the trade gap but it was more through import suppression than export gains. Did the government and the private sector pay attention to expand the domestic market, achieve volumes and economies of scale to enter the global marketplace more confidently?

Comment by Riaz Haq on February 23, 2021 at 9:07pm

#Pakistan consumer confidence up 1.8% from Q3/20 to Q4/20. The index covers four key parameters -- household financial situation, country’s economic condition, unemployment, and household savings. #economy - Business Recorder

https://www.brecorder.com/news/40067439

Dun & Bradstreet Pakistan and Gallup Pakistan have issued their report on ‘Pakistan Consumer Confidence Index (CCI)’ for Q4 2020.

The Consumer Confidence Index stood at 90.3 points in Q4 2020, compared to 88.7 points in Q3 2020, translating into 1.8% quarter-on-quarter increase. This was driven by the improvement in current situation, up 14.9% q-o-q, which was magnified by a recovery from a low base as sentiments were severely dampened during the past 6 months due to COVID-19.

In contrast, future expectations deteriorated for the first time since Q1 2020 due to cautious optimism by individuals because of prevailing uncertainty amid resurgence in COVID-19 cases. Moreover, the overall consumer confidence in Pakistan has remained pessimistic in all four quarters of 2020.

The CCI report has been developed by assessing consumers’ confidence about the economy as well as their personal financial situation.

The index covers four key parameters -- household financial situation, country’s economic condition, unemployment, and household savings.

The index is a reflection of ‘current situation’ (economic changes felt in the last six months), as well as ‘future expectations’ (changes expected for next 6 months) of consumers across the country. The CCI ranges from 0 to 200, with 100 as the neutral value. A score of less than 100 indicates pessimism.

During this survey, optimism has improved for household financial situation, country’s economic situation and unemployment, while it has declined for household savings.

This is primarily attributed to consumers’ concerns about future household savings. This could have a cascading effect on asset related investments in the country, and overall spending by consumers. Perceptions about the country’s economy have improved consistently across all four quarters of 2020, highlighting upbeat consumer sentiments. Household financial situation was the most optimistic parameter, implying people’s household income seems to be rising after a decline due to COVID-19.

During Q4, household financial situation was the only CCI parameter to turn overall optimistic owing to improvement in current situation. While 33% consumers believe that their income levels will improve in the next 6 months in Q4 compared to 30% in Q3, 28% in Q2 and 32% in Q1.

In contrast, rising inflation and more importantly unemployment continue to drag consumers’ enthusiasm as unemployment remained the most pessimistic parameter. Despite an increase in overall optimism regarding unemployment, 3 out of 4 (73%) respondents believed that unemployment has increased in the last six months as compared to 77% in Q3.

During Q4 survey, 93% consumers believed that daily essentials have continued to become expensive/very expensive in the last 6 months compared to 91% in Q3.

On the whole, consumers across all provinces, location (urban and rural) and different age groups were relatively more optimistic for current economic situation than they were during Q3 2020 survey.

Nauman Lakhani, country lead of Dun & Bradstreet in Pakistan, stated, “The fourth issue of Pakistan Consumer Confidence marks the end of the calendar year 2020. The report compares changes in Consumer Confidence from Q3 2020 to Q4 2020. Current Consumer Confidence growth of almost 15% as compared to the last quarter is healthy, showing signs of recovery in Pakistan but consumers were cautiously optimistic as Future Expectations have declined by 6.0% as compared to Q3. I envision this Index to become a barometer of economic well-being in the Country in the years to come.”

Comment by Riaz Haq on February 23, 2021 at 9:08pm

#ImranKhan has prevailed by refusing to be bullied by the #Arabs. Western experts believe #SaudiArabia & #UAE, having tried to exert pressure on #Pakistan with little effect, are recalibrating their positions after #Trump's departure & #Biden's arrival.
https://asia.nikkei.com/Politics/International-relations/Pakistan-e...

(James) Dorsey (senior fellow at the S. Rajaratnam School of International Studies in Singapore) told Nikkei Asia that Gulf states do not want to alienate Pakistan. "Pakistan is the second largest Muslim country, which hosts the world's largest Shiite minority population," he said, "and hence it's too important for Gulf states to ignore."

The senior fellow added that Pakistan's geography, particularly its coast along the Arabian Sea, is important for Riyadh now that uncertainty is emerging in regard to U.S. President Joe Biden's commitment to regional security. Biden took office a month ago.

And then there is the Israel angle.

"The Saudis want to recognize Israel but cannot do so easily," Dorsey said. "If Riyadh recognizes Israel, the biggest protest against the country will take place in Pakistan." Therefore, Dorsey said, Riyadh wants Pakistan to establish relations with Israel first.

"That is why the kingdom has softened its stance toward Islamabad," he said.

-----------------

James M. Dorsey, a senior fellow at the S. Rajaratnam School of International Studies in Singapore, told Nikkei Asia that several factors are at play, including Pakistan's Shiite population, doubts about the U.S. commitment to the region and Saudi Arabia's desire to recognize Israel.

After the Pakistan-Arab League rift emerged in August, Saudi Arabia and the United Arab Emirates asked Pakistan to repay $4 billion in loans taken out in 2018. Then in December, the UAE suspended the issuance of work visas to Pakistani nationals, a move experts said was designed to pressure Pakistan.

But last week the situation pivoted. Besides Qureshi's trip to Cairo, Saudi Arabia and the UAE each rolled over loans of $1 billion to Islamabad.

In addition, plans for a $10 billion Saudi Aramco oil refinery in the Pakistani port city of Gwadar appeared to move forward. Shahzeb Khan Kakar, director-general of the Gwadar Development Authority, has told reporters that planning for a mega oil city will be completed in six to seven months.

Experts believe Saudi Arabia and the UAE, having tried to exert pressure on Pakistan with little effect, are recalibrating their positions.

Dorsey told Nikkei Asia that Gulf states do not want to alienate Pakistan. "Pakistan is the second largest Muslim country, which hosts the world's largest Shiite minority population," he said, "and hence it's too important for Gulf states to ignore."

The senior fellow added that Pakistan's geography, particularly its coast along the Arabian Sea, is important for Riyadh now that uncertainty is emerging in regard to U.S. President Joe Biden's commitment to regional security. Biden took office a month ago.

Comment by Riaz Haq on February 24, 2021 at 8:57am

Maple Leaf Cement Mulls Expansion as Pakistan Demand Revives - Bloomberg

https://www.bloomberg.com/news/articles/2021-02-23/maple-leaf-cemen...

Maple Leaf Cement Factory Ltd., a Pakistani maker of the construction material, is considering boosting capacity by almost a third to tap demand as the economy recovers, people with knowledge of the matter said.

The Lahore-based company plans to increase its capacity by about 7,000 tons a day at its current facility, the people said, asking not to be identified citing a private matter. The proposal is in final stages and the company is discussing the plan with banks and machinery suppliers, the people said.

Prime Minister Imran Khan’s move to offer tax cheats amnesty for investing in building homes has spurred a construction boom and is helping revive economic growth. Local sales for the building material is expected to rise 17% in the year ending June, the most in five years, according to Insight Securities Pvt.

Read more: Tax Cheats Get Free Pass If They Invest in Pakistan Housing

The company’s shares rose 1.2% at 1:30 p.m. in Karachi after jumping as much as 2.3%. The stock has almost doubled in the past year compared with 14% gain in the nation’s benchmark KSE-100 Index.

The South Asian nation is witnessing a wave of expansions in the cement industry with Lucky Cement Ltd., Kohat Cement Co. and Fauji Cement Co. deciding to increase capacity, while D.G. Khan Cement Co. is expected to take a final decision by the end of this month.

Maple Leaf will use internal funds to finance the expansion and won’t sell additional shares, one of the people said. The company did not respond to a request for comment.

With cement, fuel and car sales rising to levels before the pandemic, Khan’s government is targeting a growth of 2.1% in the current financial year, after the first contraction in 68 years in the year ended June.

Comment by Riaz Haq on February 25, 2021 at 10:09am

With sub-optimal utilisation of earlier $4.5 billion worth of three-year financing framework, Pakistan and the International Islamic Trade Finance Corporation (ITFC) on Wednesday signed a $1.1bn trade financing facility for the current year.

https://www.dawn.com/news/1609227

Under the Annual Financing Plan, “ITFC will mobilise trade financing of $1.1bn during the year 2021”, said an official statement after the signing ceremony. The financing available through this facility will be utilised by the Pakistan State Oil (PSO), Pak-Arab Refinery Ltd (Parco) and Pakistan LNG Ltd (PLL) for the import of crude oil, refined petroleum products and LNG during the year 2021 and help augment foreign currency reserves of the country and provide resources to meet the oil import bill.

The document was signed by Economic Affairs Division Secretary Noor Ahmed and ITFC’s Chief Executive Officer Eng Hani Salem Sonbol.

ITFC is a subsidiary organisation of the Islamic Development Bank Group.

On the sidelines of the signing ceremony, the two sides also agreed to firm up another three-year financing framework agreement while expanding the scope of the plan to also include agricultural commodities including DAP fertiliser from existing pipeline of oil products and liquefied natural gas, informed sources told Dawn. The next financing framework would be taken up for approval at the annual meetings of the Islamic Development Bank in June.

The government could not utilise almost one-third of the earlier package for three years that expired on Dec 31, 2020. Total utilisation in three years ending December 2020 amounted to about $3bn. The $4.5bn package was signed by the two sides in April 2018 to cover oil and LNG imports over a period of three years (2018-2020) at the rate of about 1.5 per cent per annum.

The annual utilisation, however, did not cross $900 million in first two years while third year utilisation just went past $1bn.

The facility had formally become effective on July 1, 2018, when it rolled over about $100m loan. Before the 2018-20 framework agreement, the ITFC had extended about $3.2bn trade financing facility of similar tenure to Pakistan mostly covering crude oil and some petroleum products. That three-year facility had come to an end in 2017.

Before 2018, the ITFC’s financing was available only to Pak-Arab Refinery which was expanded to the Pakistan State Oil in 2018. Last year, Pakistan LNG Ltd was also included in the arrangement for the first time. ITFC had a limited portfolio of its own and normally arranged funds from other private financial institutions.

Signing of this financing facility will be helpful in financing oil and gas import bill of the country and easing of pressure on foreign exchange reserves of the country. This agreement also reflects confidence of international financial institutions in Pakistan’s economy and its future, a statement issued by the Economic Affairs Division said.

Under the facility, funds do not come into Pakistan’s account but ease pressure on foreign exchange reserves. These funds would be used for financing of letters of credit for oil and LNG imports by PSO, Parco and PLL. The credit facility is subject to about 2.3pc plus London Interbank Offered Rate (Libor).

Minister for Economic Affairs Makhdum Khusro Bakhtyar who witnessed the signing ceremony appreciated ITFC support for Pakistan and said the financing commitments reflected confidence of international financial institutions in Pakistan’s economy. He said the ITFC financing for import of oil and LNG had been instrumental in the revival of the industrial sector in Pakistan.

Chief Executive Eng Hani Salem Sonbol said Pakistan and ITFC had a long-standing cooperation since creation of the ITFC in 2008 and Pakistan was the second largest beneficiary of ITFC financing. Both sides agreed to enhance the portfolio including the agricultural sector, a statement said.

Comment by Riaz Haq on February 25, 2021 at 10:17am

India & Pakistan Announce Ceasefire in #Kashmir. Since #India's debacle in #Ladakh, #Delhi strategic community has been abuzz with worries about a two-front threat against India, whereby #China and #Pakistan could jointly attack India. #Modi @Diplomat_APAC https://thediplomat.com/2021/02/india-and-pakistan-announce-ceasefi...

by Abhijnan Rej

The announcement comes a day before the second anniversary of Indian air strikes on alleged terrorist camps outside Balakot, a town in Pakistan’s Khyber Pakhtunkhwa province. The Indian strikes on February 26, 2019 – and Pakistan’s retaliatory action in kind the day after – were the first instances of the use of air power by the two against each other since both declared themselves as nuclear-weapons powers in 1998. Between 2001-2002, India and Pakistan were at the brink of war following deadly attacks on Indian soil, including a foiled bid by Pakistan-based extremist groups to decimate the Indian Parliament in December 2001.

--------

Many analysts (including me) have hypothesized that China’s decision to apply sustained military pressure across a wide frontage in Ladakh had much to do with India’s August 2019 decisions. Jammu and Kashmir, contrary to widespread belief, is a triangular dispute involving China as well, through its claims on Aksai Chin and the Shaksgam Valley. China also has significant infrastructural investments in Gilgit Baltistan, an area administered by Pakistan but claimed by India.

Since the beginning of the Ladakh standoff, the New Delhi strategic community has been abuzz with apprehensions about a two-front threat in front of India, whereby China and Pakistan, close military allies, could collusively attack India – or that one could take advantage of the other’s military thrust against India to open a new front. Analysts have repeatedly noted that one way for India to avoid a two-front threat from materializing is for New Delhi to reach out to Pakistan and reduce hostilities, or at the very least keep things from boiling over.

Speculating on why India may have agreed to an LoC ceasefire now, Mir noted that it could be that New Delhi now sees some of its nominal goals when it came to raising the costs for Pakistan’s support of anti-India groups as met, leading it to seek an off-ramp. However, he noted that it could very well be that India wants to free up military attention to devote to China, and therefore sees the need to bring temperatures with Pakistan down. “Both are plausible, but I’d speculate the China angle played into this more,” Mir said.

Earlier in January, news reports suggested that the Indian army’s Mathura-based 1 Corps – an offensive, strike, corps earlier tasked with meeting a Pakistan contingency – would be re-tasked with managing a China threat. Similarly, the army’s 17 Corps, India’s sole mountain strike corps, will also have a primary focus on China, reports suggested.

Of course, there is yet another possibility: that there is more to the China-India disengagement talks than what meets the eye, and that the India-Pakistan ceasefire announcement and China-India disengagement plans are not discrete, unlinked events. Finally, it remains to be seen to what extent a possible shift of the Biden administration’s posture towards Pakistan (as it sees a way out in Afghanistan) may have played into Indian calculations.

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