Iran's neighbor, U.S. ally: What Pakistan gains from being a peacemaker
Pakistan's efforts to bring an end to the conflict in the Middle East are driven by the need to avoid a spillover across its borders.
TL;DR
- Pakistan's role in peacemaking for the Iran war has enhanced its global diplomatic profile and garnered praise from U.S. leadership.
- The drive behind Pakistan's mediation efforts is to prevent conflict spillover across its border and foster ties with the U.S.
- Pakistan's vulnerability to the war's effects is significant due to its 900 km border with Iran and a large Shia population.
- U.S. Vice President JD Vance and former President Trump have commended Pakistan's Prime Minister Shehbaz Sharif and Army Chief Asim Munir for their statesmanship in the peace process.
- Pakistan aims to leverage its mediation role for economic gains, potentially through favorable loan terms from Arab states or security aid from the U.S.
- The country's economy is under severe stress, characterized by large fiscal and external deficits, high public debt, and unsustainable interest payment burdens.
- Pre-existing economic issues in Pakistan include multinational companies exiting, stagnant average incomes, and weak domestic demand.
- Rising global energy prices have exacerbated Pakistan's economic woes, as it imports a significant portion of its fuel and LNG from the Middle East.
- Despite lifting austerity measures following peace deal progress, double-digit inflation continues to squeeze purchasing power and impact economic growth forecasts.
- Structural reforms are being pushed by the IMF, including rebuilding reserves, broadening the tax base, and increasing productivity, but challenges remain, including tax revenue not being generated from a large portion of economic activity, such as that by the military and large landowners.