Former Prime Minister Imran Khan faces terrorism charges (ie potential arrest) following a speech on 20th August in which he criticised personnel from the Islamabad police and judiciary over the alleged torture in custody of his senior political party spokesman (Shahbaz Gill). We plot through the political and investor implications in this report.
It is unlikely that the increasing use of repression will put the genie of the mass political awakening, triggered by Khan, back in the bottle. In the meantime civilian politics is polarised between the PMLN-PPP led coalition of established political parties and Khan's PTI, and military-intelligence is likely split between those prepared to work with Khan and those who want him out of politics.
In the short term, this will continue to pose a challenging environment for the consistent pursuit of orthodox economic policy and the orderly conduct of politics, with the next general election due before October 2023.
Pakistan assets (eurobonds and equities) are unquestionably cheap. And resilient corporates, which makes up most of the larger, publicly-listed ones, have been through worse disruption. But there is little prospect of getting any help from a drop in domestic political temperature any time soon.
Khan has successfully mobilised mass, nationwide participation in his rallies, centred around criticism of the PMLN-PPP government and calling for early elections, since the fall of his PTI-led coalition government in April 2022 – these have been mainly peaceful but there has been a sporadically violent response from the authorities. Khan's PTI has also fared very well in most of the by-elections held since the fall of his government and his political allies have regained control of the regional assembly in Punjab (the largest province).
The PMLN-PPP government has worn the political cost of the unpopular economic decisions (energy subsidy cuts, interest rate hikes, import restrictions, currency devaluation) required to re-track the IMF programme and associated bilateral assistance. Simultaneously it has de-fanged the institution (eg National Accountability Bureau) charged with pursuing the anti-corruption cases to which its leaders are subject.
As the popular appeal of Khan has grown, driven by the narrative that his government was de-railed by a combination of US interference and corrupt elements within the domestic political class – a narrative that is much more controversial internationally than domestically – and by shifting blame for the economic crisis to his political opponents, the clampdown of media coverage has intensified. However, restrictions on broadcast media which have given a platform for voices critical of government (ARY) and direct streaming platforms for Khan's rallies (YouTube) appear to be reinforcing, rather than eroding, Khan's mass appeal – the perception of a martyr fighting against the odds continues to resonate.
In Pakistan, government is a combination of the front-office of civilian politicians — currently under the leadership of PM Shebaz Sharif until, at most, October 2023 when the next election is scheduled — and the back-office of the military-intelligence services — currently under the leadership of General Qamar Javed Bajwa, whose second consecutive term is due to end in November 2022, with a possibility of another renewal. The line demarcating the spheres of influence of the civilian and military-intelligence centres of power is very blurred for anyone on the outside.
For Khan to have so successfully mobilised mass, nationwide support, with plenty of sympathetic voices in public media to boot, there are likely elements within the military-intelligence "deep state" which support him, or, at least, advocate not boxing him in (ie better to have his influence within the system of public politics rather than outside). If accurate, that implies there is a split within the deep state between those that support the leadership combination of PMLN-PPP in the civilian realm and Bajwa in the military one, and those that view Khan as an irresistible force on the civilian side and/or Bajwa as a counter-productive one on the military side.
Khan has fallen short of direct criticism of the military and intelligence services — although he has come very close on occasions, particularly in the days just before and after the fall of his government. However, this restraint has not extended to some of its political colleagues and certainly not to his mass following in their comments on social media. Public criticism is a red line for the military-intelligence and there is likely concern that this has become a part of the popular vernacular in recent months. Ironically, an arrest of Khan, under whatever pretext, would likely constitute a red line for his support base.
Anything that risks de-railing the policies required to address inflation, fiscal deficit, and restoring IMF and bilateral external support is negative. Part of Khan's current popular appeal is his allegation of US interference and his opposition to the current government's economic austerity. Therefore, any action that increases his appeal, eg his arrest, likely fits into this category.
Khan's politicking within the institutional framework of public politics – ie participation in elections, recourse to judicial appeals – is far less concerning than it would be outside this framework – ie a shift from mass rallies to mass civil disobedience. A real or, at least, perceived tilt towards political repression in response to his popular appeal – marshalling media, police force, election commission, and judicial personnel against him – increases this risk.
The support base that Khan leads is nationwide, spanning all the provinces and all income brackets. There is no question about the command he enjoys over this support via highly personalised, charismatic leadership. However, without his leadership it is not clear how much of this diverse support base stays within the institutional forum for politics. While his political party, the PTI, has evolved over 25 years into a nationwide organisation, capable of competing and winning a parliamentary election, it has serious weaknesses:
Splits between its original founders ("true believers") and those established politicians ("the electables") who joined it shortly before the 2018 election – this is independent of the additional vulnerability, laid so bare in the run-up to the fall of the PTI-led government in April 2022, should a coalition with other parties be necessary.
Splits between its more radical youth and rural segments versus its older and urban segments.
Lack of a clear leadership successor to Khan, with the same charismatic appeal across different economic, provincial, ethnic strata of society, which leads to perpetual competition among the cadre of PTI leaders one rung below Khan.
The dilemma is that for Pakistan to ever escape its cycle of political instability, the grips on power of the established political civilian class – which, regardless of its origins, has become a force for the promotion and preservation of kleptocracy – and the military-intelligence deep state – which has cultivated, at one time, each one of the leaders of this established political civilian class, and, at a later time, undermined them to avoid them becoming too threatening a rival centre of power – have to be loosened.
The unprecedented, mass political awakening sparked by Khan, is arguably a part of this long-term process. For Khan to get to this point alone has taken over 25 years. But the transition away from one set of institutionalised political norms to another is proving to be a very messy one. The chances of a cleaner, "managed", transition, under for example a multi-term co-habitation of Khan as PM, and Bajwa as army chief, evaporated in April 2022.
Pakistan's politics are evolving but there is no clear path from the current set-up – a weak civilian government, taking unpopular economic decisions without a recent popular electoral mandate, and a military leader, within months of his current term ending, and an opposition movement, facing increasing repression and whose leader is now under threat of arrest – to a more sustainable political equilibrium — an outright parliamentary majority and electoral mandate for the civilian leadership and an army chief with good working relations with the head of that parliamentary majority.
Without that clarity, it is hard to justify a long-term investment case, beyond an appeal to very cheap valuation.