Soaring inflation, economic recession, and democratic backsliding are the defining norms of the world. Even the stable economies and vibrant democracies of the world are grappling with a full-blown financial crisis. The countries of the global south are facing a double sword in the form of an economic crunch and an energy crisis.
Pakistan is dealing with the dreaded Spectre of stagflation. Credit rating agencies have depicted a gloomy picture of Pakistan’s economy. If this economic crisis persists, which is likely to continue according to different scholars and reports of international institutions, then the country will be plunged into the vicious cycle of hyperinflation and poverty.
Traditionally it was the conception among the masses and consensus among the economists that Pakistan’s economic woes are primarily because of the security-centred policies. Moreover, besides the security dilemma, political turbulence has deleteriously affected the economy of Pakistan.
In Pakistan, the boom-and-bust cycle of economics continued primarily because of frequent regime changes. The era of political vendetta and arbitrary arrests started during the period of Ayub Khan when he passed the Elective bodies disqualification order. According to the provisions of EBDO, a dictator can dismiss his political opponents on fraudulent charges of corruption and disloyalty to the state.
Similarly, Bhutto imprisoned his political opponents and squandered the country into a crisis of no return because of his ill-thought economic policies. The growth rate also reverted to 3.6%, which was 6% during the era of Ayub Khan.
Furthermore, total external debt reached unsustainable in 1998, growing from $ 20 billion in 1990 to $ 43 billion. The economy witnessed sanguine in 2001, but euphoria proved temporary. The era of vendetta politics has been revitalized in the last ten years.
Political polarization has triggered the crisis in Pakistan, the poverty rate has been exacerbated, and IMF is unwilling to resume the tranche even though guarding angles (US, KSA, China) of Pakistan had rebuffed the request of disbursing the dollar in the country.
The impacts of political polarization are grave as the country is already standing on the verge of default due to the unprecedented geopolitical environment and tempestuous floods. According to the UN, floods have pushed 9 million more people into the unending cycle of poverty.
On the other hand, inflation surged to 31.5 in the last month, according to the Pakistan Bureau of Statistics, its highest poverty level since 1974. Skyrocketed inflation will further aggravate the miseries of the coalition government, which is already struggling to secure a deal with the IMF.
Our politicians must understand that political tensions have always proved catastrophic, even for stable economies. For instance, Italy in 1990 faced economic decline primarily because of the fractured institutions.
Financial instability was so severe that they cancelled exchange rate agreements with European powers. Rising public debt is another grim implication of the political turmoil which Italy witnessed. According to the Financial Times, Italy’s debt in the eighties increased to 38% because of the inept management of public finances.
Later on, OECD confirmed in its survey of 1997 that Italy’s economic distress was mainly because of inconsistent policies and political uncertainty, as uncertainty is even worse than war.
Similar is the case in the UK; a constant circus of changing government and inconsistent policies compounded with the changing energy order had entangled the country in ceaseless economic turmoil. Pakistan’s politicians are leading the country towards a financial emergency because of their parochial interests.
I think Pakistan’s economic miseries are primarily because of the Democratic deficit. A peaceful transfer of power and coherent policies are the only road toward financial stability.
The charter on the economy of Pakistan is indispensable to avert the economic predicament. The stringent measures to reverse the economic failures can only be taken when there is a peaceful power transfer among the political stakeholders.
Pakistan should follow the Philippines’ economic model to avert its dependence on the IMF, as the Philippines was the longest-term lender to the IMF.
They appointed non-partisan economists and successfully stabilized the economy by implementing stringent reforms. If this political drama continues, it will leave a vacuum for the maximalist elements, deter investors, leave institutions fractured, and the economy will remain in shambles.
- The Economic Cost of Political Uncertainty - 15/05/2023
