This Week in Geopolitics

Pakistan’s Disunion Puts Investment at Risk

December 4, 2017

Jihadism has been radiating out of Pakistan for decades and causing problems for the country’s relationships with other governments. Lately, however, it’s been Pakistan itself that is suffering from its homegrown Islamism. The country was founded on a contradiction between secularism and Islamism, and though it has covered up its incoherence, it has never overcome it. The contradiction is finally catching up to the country, and things in Pakistan will get worse before they get better.

Warning Signs

Evidence that things in Pakistan are reaching their boiling point came, paradoxically, from the outside. A Nov. 22 report by a Pakistani daily said that a Chinese delegation visiting Pakistan had expressed concerns that political instability could adversely affect the tens of billions of dollars that China was investing in the South Asian nation. The report said that on Nov. 21, a joint committee on the China-Pakistan Economic Corridor—part of China's One Belt, One Road initiative—approved the broad parameters of a long-term plan for the CPEC but failed to agree on development projects and financing for special economic zones. Speaking to reporters after the meeting, a Pakistani minister who serves as the country’s point man on the CPEC acknowledged that political unrest since 2014 was undermining the mega-development project.


Until December 13, you have a chance to become a Mauldin VIP...

And get the entire Mauldin Economics team behind your portfolio...

At up to a 74% discount

Want in?

Pakistan has grown more unstable since the United States invaded neighboring Afghanistan after 9/11. In fact, over the past decade, Pakistan has been the target of a vicious jihadist insurgency that has claimed as many as 80,000 lives. Yet the Chinese still went ahead with the CPEC in 2013. Four years later, China, usually a stalwart ally, is beginning to second guess its investment plans for Pakistan.

Meanwhile, Pakistan's relations with its historical ally, the United States, have also hit an all-time low. The incoherence in Islamabad is preventing the country from working effectively with the US to address common concerns about the insurgency in Afghanistan. The top American commander in Afghanistan said Nov. 28 that he had not seen a change in Pakistani support for Afghan militants even though the administration of President Donald Trump has taken a tougher line against Islamabad. US Defense Secretary James Mattis is currently visiting the Pakistani capital, where he has said he will try “one more time” to work with Islamabad before taking “whatever steps are necessary” to address its alleged support for Afghan militants.

India, Pakistan's archrival, has expressed its own concerns about Islamist militants operating from Pakistan. In 2008, terrorists from Pakistan carried out one of the worst attacks in India’s history, killing 164 people and wounding over 300 more in Mumbai. Under intense pressure from India and the US, Pakistan vowed to crack down on Jamaat-ud-Dawah, the group responsible for the attack.

Almost a decade later, however, Jamaat-ud-Dawah is more entrenched than ever in Pakistan. It recently formed a political party, and its founder and leader, Hafiz Muhammad Saeed, was released from house arrest on Nov. 23. The United Nations Security Council designated Saeed a terrorist in December 2008, but his political movement has only gained ground in Pakistan, and Saeed himself recently announced his intention to run for public office in next year’s elections.

Finally, Pakistani relations with Iran have also been tense. Iran, which shares a border with Pakistan, has been the target of Islamist militancy emanating from sanctuaries in Pakistan’s southwest. Iran has warned Pakistan several times over the past few years that it will conduct raids across the border in Pakistan if Islamabad does not rein in anti-Iran groups on its soil. Already it has shelled groups across the border. 

Political Decay

Pakistan has been incoherent since its inception in 1947. It has never settled the debate over whether it ought to be a secular or an Islamist state. Tensions have only gotten worse since the 2011 assassination of Punjab Gov. Salman Taseer at the hands of his own bodyguard. Taseer’s killer said the governor was guilty of blasphemy for criticizing laws prohibiting individuals from speaking out against religion. Many Pakistanis deemed the assassin a hero, and a team of lawyers enthusiastically defended him. It took the state five years to convict and execute him for the murder. The assassination and trial spawned an entire social movement and is now represented by a new political party, Tehreek-e-Labaik Pakistan.

In early November, Tehreek-e-Labaik Pakistan organized a sit-in at the capital to protest a perceived softening of the government’s stance on blasphemy. The army was finally called in on Nov. 26 to broker a deal, and in the end, the protesters got what they wanted. But even the military, which has ruled Pakistan intermittently for close to half of the country’s 70-year history and is still its strongest institution, can’t control what’s happening to the country.

Pakistan, moreover, used to boast a two-party political system that has since devolved into a patchwork of ideologically rigid groups, many of which are Islamist or otherwise right-wing. One such party is Pakistan Tehrik-e-Insaf, led by cricketer-turned-politician Imran Khan. PTI is itself not an Islamist party, but its allies are Islamists. The party is likely to benefit in next year’s federal election from a major corruption scandal that has weakened the current ruling party, the Pakistan Muslim League, and forced its leader, Nawaz Sharif, to step down as prime minister. But whether Islamists or secularists control the government, the fight for Pakistan’s soul will not go away.

Neither will its economic struggles. Pakistan’s foreign exchange reserves hover around $14 billion, enough to cover only about three months’ worth of imports. Its reserves are falling because its exports are falling. Debt servicing stands at 29% of export earnings. Markets are speculating about a depreciation of the Pakistani rupee. And Pakistan’s population is exploding. It exceeded 200 million people this year, according to a 2017 census, and has increased by 57% since the last census nearly 20 years ago. At the same time, educational standards have been declining, with the literacy rate down to 58%. A third of the population lives in poverty.

For Pakistan to recover, it needs outside investment to fund things like the China-Pakistan Economic Corridor. But to secure such investment, the country must overcome the present situation, where multiple powerful factions have paralyzed the government.

George Friedman
George Friedman

Discuss This

We welcome your comments. Please comply with our Community Rules.


There are no comments at this time.

Use of this content, the Mauldin Economics website, and related sites and applications is provided under the Mauldin Economics Terms & Conditions of Use.

Unauthorized Disclosure Prohibited

The information provided in this publication is private, privileged, and confidential information, licensed for your sole individual use as a subscriber. Mauldin Economics reserves all rights to the content of this publication and related materials. Forwarding, copying, disseminating, or distributing this report in whole or in part, including substantial quotation of any portion the publication or any release of specific investment recommendations, is strictly prohibited.
Participation in such activity is grounds for immediate termination of all subscriptions of registered subscribers deemed to be involved at Mauldin Economics’ sole discretion, may violate the copyright laws of the United States, and may subject the violator to legal prosecution. Mauldin Economics reserves the right to monitor the use of this publication without disclosure by any electronic means it deems necessary and may change those means without notice at any time. If you have received this publication and are not the intended subscriber, please contact


The Mauldin Economics website, Thoughts from the Frontline, The Weekly Profit, The 10th Man, Connecting the Dots, Transformational Technology Digest, Over My Shoulder, Yield Shark, Transformational Technology Alert, Rational Bear, Street Freak, ETF 20/20, In the Money, and Mauldin Economics VIP are published by Mauldin Economics, LLC Information contained in such publications is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. The information contained in such publications is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in such publications are those of the publisher and are subject to change without notice. The information in such publications may become outdated and there is no obligation to update any such information. You are advised to discuss with your financial advisers your investment options and whether any investment is suitable for your specific needs prior to making any investments.
John Mauldin, Mauldin Economics, LLC and other entities in which he has an interest, employees, officers, family, and associates may from time to time have positions in the securities or commodities covered in these publications or web site. Corporate policies are in effect that attempt to avoid potential conflicts of interest and resolve conflicts of interest that do arise in a timely fashion.
Mauldin Economics, LLC reserves the right to cancel any subscription at any time, and if it does so it will promptly refund to the subscriber the amount of the subscription payment previously received relating to the remaining subscription period. Cancellation of a subscription may result from any unauthorized use or reproduction or rebroadcast of any Mauldin Economics publication or website, any infringement or misappropriation of Mauldin Economics, LLC’s proprietary rights, or any other reason determined in the sole discretion of Mauldin Economics, LLC.

Affiliate Notice

Mauldin Economics has affiliate agreements in place that may include fee sharing. If you have a website or newsletter and would like to be considered for inclusion in the Mauldin Economics affiliate program, please go to Likewise, from time to time Mauldin Economics may engage in affiliate programs offered by other companies, though corporate policy firmly dictates that such agreements will have no influence on any product or service recommendations, nor alter the pricing that would otherwise be available in absence of such an agreement. As always, it is important that you do your own due diligence before transacting any business with any firm, for any product or service.

© Copyright 2018 Mauldin Economics