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Need for prudent economic diplomacy 

Dr. Ikramul Haq & Abdul Rauf Shakoori

Our foreign policy is one of friendliness and goodwill towards all the nations of the world. We do not cherish aggressive designs against any country or nation. We believe in the principle of honesty and fair play in national and international dealings and are prepared to make our utmost contribution to the promotion of peace and prosperity among the nations of the world. Pakistan will never be found lacking in extending its material and moral support to the oppressed and suppressed peoples of the world, and in upholding the principles of the United Nations Charter—Quaid-e-Azam Muhammad Ali Jinnah, broadcast talk to the people of the USA in February 1948

The Finance Minister of Pakistan, Muhammad Ishaq Dar, claimed to have a strong belief in maintaining the strength of Pakistani Rupee against the dollar. However, January 26, 2023 will be marked as one of the worst days for Pak rupee as its value dipped by 24.5 in a single trading day which is 9.61% of its strength against the American dollar. Thus, all the tall claims made by Ishaq Dar for bringing American dollar below Rs. 200 before and after replacing Miftah Ismail proved wrong. His administrative tactics of artificially maintaining the value of Pak rupee boomeranged.  .

It is strange that being in the International Monetary Fund Programme and agreeing with them for free market-determined rate for the dollar, actions, both covert and overt were taken by Ishaq Dar and his team to artificially maintain the Pak rupee value has resulted into flourishing of an informal market for the sale and purchase of foreign currency. One US$ was trading as high as Rs 270 as opposed to the official interbank rate hovering between Rs. 225 to Rs 230 before lifting of cap.

Apart from the fiscal challenges that played a major role in fall of the local currency’s value, factors such as depleting foreign exchange reserves, huge current account deficit, pressure of external payments, hoarding of dollars by the mafia and its smuggling to neighboring country contributed to worsening the situation. The ineffective controls and lack of experienced staff at the border has been and is still responsible for dollar shortage in the country. The government needs to improve its reporting requirement as well as equip the staff with new techniques to detect smuggling of green pack.

Pakistan, with its 225 million people, needs a paradigm shift in the existing governance model. The traditional/orthodox approach of running the country in the colonial style is not only a major cause of our fiscal challenges, but also poses a threat to national security. The role of local governments is considered very important in community building and development of the country. An effective local government system not only helps in economic planning of the concerned community but also adds to its growth.

Local governments are supposed to generate their own revenues and are accountable for the use of those funds. However, in Pakistan, local government system adds no value, rather is considered a burden on the national treasury. The government should introduce corporate model to run the country’s affairs.

The Constitution (Eighteenth Amendment) Act, 2010 [commonly called the18th Amendment] gives autonomy to the provinces and envisages devolution of political, administrative and financial powers to local governments vide Article 140A(1) of the Constitution of Islamic Republic of Pakistan [“the Constitution”], which says: Each Province shall, by law, establish a local government system and devolve political, administrative and financial responsibility and authority to the elected representatives of the local governments. However, even after passage of nearly 13 years, command of the Constitution remains unfulfilled as no powers are devolved at municipal, district and tehsil level to generate own revenues to run the affairs smoothly.  

Besides aligning the political and administrative structures according to the Constitution, we need to revisit our ineffective foreign policy. A robust and effective foreign policy plays a significant role in the progress of any country. It works as a cornerstone towards maintaining diplomatic relations with nations around the globe, which are then developed, fostered and consolidated through direct dialogues and meaningful representation at bilateral as well as multilateral platforms. Article 40 of the Constitution lays down guidelines for the formulation of foreign policy of Pakistan and mentions that the State shall make efforts for maintaining and consolidating brotherly relations among Muslim countries and promote international peace and security. However, over the period, our foreign policy has been in disarray in the same manner as are domestic affairs. It is trapped between democracy, martial law and now hybrid system.

Historically, looking at the role of Zulfikar Ali Bhutto, Pakistan was an important actor in the creation of Organization of Islamic Cooperation (OIC) which has currently 57 members and known as second largest intergovernmental body after the United Nations.  However, General Zia’s martial law brought a paradigm shift in our foreign policy backing Taliban Mujahedeen to defeat erstwhile USSR.   General Pervez Musharraf gave a new turn to the policy and partnered with United States of America (USA) to end the Taliban government in Afghanistan. However, in these two eras, despite playing the role of satellite state for US and its allies, we failed to avail any important opportunity to advance economic ties with them and the rest of the world.

During the democratic regime under Pakistan Peoples Party (2008-2013) and Pakistan Muslim League Nawaz (2013-2018) some steps were taken to realign Pakistan’s global position based on trade and economic partnerships. Efforts were made to revive relationship with Russia and enter into strategic partnership with neighbouring Iran and other Central Asian states through initiatives like Iran Pakistan Gas pipeline project.

The game changer project, China Pakistan Economic Corridor (CPEC), which is part of China’s “One Belt, One Road (OBOR)” initiative, envisages a vision to improve business connectivity across regions that extends from the Baltics in Europe to Southeast Asia and from China to Africa. Under the CPEC, numerous energy and infrastructure projects have been successfully completed. It has potential to make Pakistan one of the most strategically important countries in the region. Its potential dividends include improvement of trade and economic connectivity between Asia, the Middle East and Europe. The second phase of CPEC of cooperation in industrial growth and opportunities for public/private and joint ventures to boost economic growth is facing difficulties due to perpetual political instability in Pakistan and lack of continuation of economic policies as well as weaknesses in administrative machinery for implementing the agreed projects.  

Over the period in the overall scheme of things, our rulers, civil and military alike, have failed to emphasise on economic diplomacy to extract advantages offered by the increasing trend of globalization and strategic partnerships. A foreign policy based on economic and strategic interests can help develop long term and sustainable relationships, where global partners guard each other’s interests in any unstable regional or global environment. Rather than framing a foreign policy aimed at pursuing national goals and seeking peace and stability through international cooperation, our foreign policy history is tempestuous and not capitalizing the country’s real potential due to its strategic location and resources.

The current economic mess cannot be fixed without sound and clear foreign policy. We have to engage our brotherly countries to win their trust for investment and trade.  Our foreign policy should be designed to promote interstate relations and respect sovereignty and territorial integrity of all States with adherence to principles of non-interference in their internal affairs. The need to form strategic partnerships is greater than before for Pakistan as our precarious economic situation is becoming a constant threat for national security. We have to diversify our relationships in order to reduce our risk factor and reliance on any particular block.

The decision to restore ties with Russia on the basis of trade is an excellent step and both sides seems interested to further strengthen and enhance collaboration in the fields of trade and investment, energy, communication and transport, higher education, industry, railways, finance and banking sector, customs, agriculture, science and technology, and information technology. Moreover, both sides have agreed that the oil and gas trade transaction will be structured in a way that it has mutual economic benefit and the process is to be completed within March 2023. Pakistan has agreed to pay in currency of friendly countries.

Pakistan should also engage the USA as well and address all its concerns. We should not forget that the USA is a major trade partner of Pakistan and important player for green revolution. Assistance provided by Americans for building Business Administration, Jinnah Postgraduate Medical Center, the Indus Basin Project, Faisalabad Agricultural Institute and Lahore University of Management Sciences etc is remarkable.. Moreover, USA’s role in construction of the Mangla and Tarbela dams, Guddu Power Station that meet over 70 percent of our electricity needs cannot be ignored and also in our economic growth, education and health is praiseworthy. Pakistan is considered the largest recipient of US foreign assistance. Therefore, we should revisit our policy towards the USA resolving all thorny issues and seeking their cooperation to meet various challenges on economic front.

The need of the hour is to implement an insightful and agile diplomacy and take full advantage of relationships with global leaders like China, Saudi Arabia, United Arab Emirates, United States of America and Turkey. The deep-rooted traditions of diplomacy can help extract greater economic benefits and put Pakistan on a path towards long term and sustainable growth. A strong and resilient Pakistan can provide sustainable peace and development in the region and beyond.


Dr. Ikramul Haq, Advocate Supreme Court, specializes in constitutional, corporate, media, intellectual property, arbitration, international taxation, IT and ML/CFT related laws. He is author of many books on law, economic and political history of Pakistan, drugs, arms, terrorism and related matters. He has been studying phenomena of arms-for-drugs, narco-terrorism and global heroin economy since 1979 and authored Pakistan: From Hash to Heroin and its sequel Pakistan: From Drug-trap to Debt-trap. He studied journalism, English literature and law. He is Chief Editor of Taxation He is country editor and correspondent of International Bureau of Fiscal Documentation (IBFD) and member of International Fiscal Association (IFA). He isVisiting Faculty at Lahore University of Management Sciences (LUMS) and member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE). 

Abdul Rauf Shakoori, Advocate High Court, is a subject-matter expert on AML-CFT, Compliance, Cyber Crime and Risk Management. He has been providing AML-CFT advisory and training services to financial institutions (banks, DNFBPs, investment companies, money service businesses, insurance companies and securities), government institutions including law enforcement agencies located in North America (USA & CANADA), Middle East and Pakistan. His areas of expertise include legal, strategic planning, cross border transactions including but not limited to joint ventures (JVs), mergers & acquisitions (M&A), takeovers, privatizations, overseas expansions, USA Patriot Act, Banking Secrecy Act, Office of Foreign Assets Control (OFAC).

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