Pakistan: Turmoil and spillover -- Pakistan's economic and security challenges will become more difficult in 2012, driven by weak governance, the spread of extremism, and deteriorating ties with the U.S.. The state will not collapse, but the risk of severe political instability is growing, not just for Pakistan but also the region, as the U.S. withdraws from Afghanistan.
Q- What are the Pakistani government's biggest problems?
A- There is the weak economy, the government's deteriorating finances, a hostile military, judges spoiling for a fight over corruption charges, determined militants who have proven they can strike virtually anywhere inside the country, and worsening ties with a key source of direct and indirect financial aid -- the United States. Flooding last year did considerable damage to exports of rice and cotton, undermining the country's balance of payments position. Higher electricity subsidies and renewed pressure for large financial bailouts for cash-strapped public sector enterprises (especially airlines and railways) will also limit the government's ability to mind the budgetary gap.
The best thing this government has going for it is that neither the opposition nor the military wants responsibility for this mess and aren't ready to try to force the ruling party from power -- at least not yet.
Q- How does the beginning of withdrawal of U.S. troops from Afghanistan feed these problems and what is the risk of spillover?
A- A smaller U.S. footprint in the region will feed financial insecurity in Pakistan, because Washington will probably reduce development aid to the country and roll back Coalition Support Funds, a reimbursement program for Pakistan's counter-terrorism cooperation. Pakistan isn't totally dependent on U.S. aid, but it does plan on external financing from the U.S. and other donors when it prepares a domestic budget. More
