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Pakistan expanded its economy while enmeshed in the Afghan Taliban

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Pakistani soldiers check documents from Afghan nationals returning to Afghanistan at the Pakistani-Afghan border.

AFP via Getty Images

Pakistan has expanded its economy by an average of 4% per year and its exports tenfold over the past 20 years. It has grown into a global player in clothing and textiles and recently exported its first smartphones.

Pakistan has also spent the past two decades in an intertwined dance with Islamic extremism, promoting the Afghan Taliban while cracking down on its own Taliban Movement in Pakistan (TTP). These parallel stories, which had been tense for a long time, collided just as the Afghan Taliban returned to power.

The Taliban’s invasion of Kabul was a kind of foreign policy windfall for their huge southeastern neighbor. It not only overthrew a government that viewed Pakistan as the favor of its archenemy India, but also without a conflict that could have sent streams of refugees across the Pakistani border. “Pakistani officials have said the worst for them would be a civil war next door,” said Irfan Nooruddin, director of the Atlantic Council’s South Asia program.

The Taliban’s triumph is also a kind of nightmare that makes Pakistan a simple scapegoat for global outrage over the repression that its fundamentalist clients are likely to impose. “Pakistan is very vulnerable to sanctions,” says Noorudin. “All of the capital they need for development could be frozen up pretty quickly.”

An important barometer to watch will be the Financial Action Task Force, the global anti-money laundering organization. The FATF put Pakistan on its “gray list” in 2018 and identified “serious shortcomings” in the country’s surveillance regime. That

Global X MSCI Pakistan

Exchange Traded Fund (Ticker: PAK) has since lost half of its value. A post-mortem investigation into Islamabad’s Taliban funding could ruin the chances of getting rid of this pest. It could also affect further tranches of a $ 6 billion aid package that Pakistan signed with the International Monetary Fund two years ago.

Imram Khan, the Oxford-trained Prime Minister who came to power two months after Pakistan’s gray list, is overwhelmed as a reformist outsider. “Not much has changed,” says Alison Graham, chief investment officer at frontier markets specialist Voltan Capital Management. “Khan seems to be made of the same material as the political environment.”

She is still watching Pakistani investments for valuation reasons. “The market is going straight down for reasons I don’t quite understand,” she says. “Pakistan’s multi-million dollar political problems do not affect its economic situation as much.”

Maurits Pot, Chief Investment Officer at Dawn Global, selected Pakistan as one of five countries in its recently established

Asian growth boy

ETF (CUBS). Companies that take advantage of the country’s youth and educational level, such as software providers


(SYS.Pakistan), whatever geopolitics brings will thrive, he argues. “It’s a very lively, but cheap capital market,” he says.

Pakistan’s exclusion from the west should also come up against its limits. China, which has marked a China-Pakistan economic corridor as one of the flagship projects in its One Belt One Road master plan, will happily ease with the withdrawal of the West. More importantly, the return of the Islamic revolution to underdeveloped Afghanistan may be a tragedy; The spread of the Islamic revolution to the 225 million strong, nuclear armed Pakistan would be a disaster. “The last thing the US wants is two failed states side by side,” notes Pot.

Pakistan had no choice but to meddle in Afghan politics, says Nooruddin of the Atlantic Council. Home to 25 million Pashtuns, the ethnic group that dominates the Taliban (and the recently overthrown Afghan government), it must be careful with their loyalty. “The Taliban have been arduous for Pakistan to handle and they have done reasonably well,” adds Graham.

This subtlety is quickly lost, however, when the Taliban consolidate their recapture of their homeland with the cameras running. Pakistan won’t have much time to celebrate its happiness.

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