AFP/File

Our parliament’s wise consensus that we stay out of Yemen is consistent with a deeper analysis of the situation. The Houthis are ethnic Arabs who follow the Zaidi branch of Shia Islam and mostly live in the northern parts of Yemen, constituting about 40 per cent of the country‘s population. They have rebelled against the autocratic and ineffective rule of former Yemeni President Ali Abdullah Saleh and his successor, Abd Rabbuh Mansur Hadi, who enjoy Saudi Arabia’s support. The rebellion is thus a challenge to Saudi Arabia’s handling of Yemen, a purely political issue, as pointed out by a recent blog by Graham E. Fuller on Huffington Post. It does not pose a threat to the holy sites in Makkah and Madina. However, for us, if we join the so-called Sunni coalition of countries put together by Saudi Arabia to crush the rebellion, it could become a major sectarian issue. Importantly, it would drag us into yet another protracted war with no clear exit — à la Afghanistan.

So, why is Prime Minister Nawaz Sharif under pressure from his “friends” despite parliament’s clarity, and what is the nature of the pressure? The answer lies in our poor economic management, especially in the last three decades. This has resulted in frequent balance of payments crises and dependence on “friends” to bail us out. The pressure to engage in Yemen is an example of one important bailer, Saudi Arabia, saying, “it is payback time”.

Poor economic management manifests itself in two serious vulnerabilities: the trade deficit (we export far less than we import) and its driver, the fiscal deficit (the government spends far more than the revenue it collects). Let us unpack the trade deficit.

If we were importing a lot of machinery that increases our capability to export in the future, the trade deficit would actually be a good thing because it would reflect that we are investing to increase our international competitiveness. Alas, that is not the case. Our imports are largely consumption goods (available in shopping malls, car showrooms and markets of electronic goods) that support the lavish lifestyle of our spendthrift government, the elite and the new middle class. Imports have grown sharply from 7.6 billion dollars in 1990 to 40.2 billion dollars in 2014. Exports, meanwhile, increased from 6.1 billion dollars in 1990 to 24.8 billion dollars in 2014. In the last five years, however, exports have been stagnant.

If our economy’s interaction with the world was only via international trade, the value of rupee vis-à-vis other currencies would be a lot lower. Imports would become a lot more expensive so less would be imported, and exports a lot cheaper so more would be exported, and the balance would be restored. But our economic managers have declared that the rupee is sacrosanct and will be maintained at around 100 rupees to the dollar, never mind the trade deficit.

So, what are we counting on to keep the rupee high vis-à-vis the dollar to support our extravagant consumption? We are counting on remittances sent by our migrant workers. Our failure to create productive jobs at home has resulted in a huge number of our best workers seeking their fortunes abroad. Many are in the oil-rich Arab countries, especially Saudi Arabia. The savings they send home support their low-income families but, importantly, also allow the rich and the government to live beyond their means. And our “friends” know this.

Now you see the pressure?

Our voracious appetite for lifestyle imports is such that even the huge volume of remittances (nearly $15 billion every year) is not enough to clear the trade deficit. We have created a “friends of Pakistan” club in which Arab countries are important members. We periodically appeal to the “friends” for handouts to support our consumption. This is in addition to the loans taken from the International Monetary Fund, the World Bank and the Asian Development Bank. We have deluded ourselves into thinking that the loans from the latter are burdensome, whereas the handouts from our “friends” are out of brotherly love.