Inflation in April clocked in at 0.28 percent, the lowest in 60 years. This takes one back to the fateful year of 1965, when the War that September sent all the economic progress of the 1960s at naught, and began the process of economic deceleration that pulled the country down, and ultimately led to the fall of the Ayub regime, as well as later the separation of East Pakistan. It is probably a coincidence that Pakistan is once again facing the prospect of a war with India, but as the economy now is radically different, comprising only what was then West Pakistan, and in the process of recovery rather than experiencing the growth that the Green Revolution generated, while a full-blown war would be disastrous, even the prevailing war scare is bad enough. Perhaps the biggest difference is that the 1965 conflict was conventional, between two professional armed forces, while this time there is a very real prospect of the conflict being nuclearised, with civilian populations suffering horrendous losses, even as targets with military justification are hit.
Even if war is averted, the cost will have been high for Pakistan. There will be a number of civil works carried out for the armed forces, and there will be increased cost of matériel. This will throw budget estimates out of kilter, but the expenditures will be unavoidable. How the IMF will react will perhaps only be seen at its second review, due in October, though India has already written to it recommending that it withhold the tranche over which a staff-level agreement has been reached. The difficulties of making the next budget are separate. And all of this will happen if the peace is kept
The State Bank of Pakistan, in its latest economic report, has said that key challenges hindering the country from receiving foreign direct investment is political and economic instability, high taxes, and an infrastructure gap. Though the government has blamed political instability on the opposition, it will have to concede that war is even more destabilizing, while the infrastructure gap will only grow worse from enemy airstrikes. To top it all, taxation is always higher than usual in an economy which has gone through a war. It is astounding that India is willing to put Pakistan through the economic wringer, even if it means going through it itself.
