Political Instability has Triggered an Economic Crisis in Pakistan

Political upheaval and instability in Pakistan have a long history; throughout the country's 75-year history, 23 Prime Ministers have been sworn in, and none have served their full term; they were either overthrown in a military coup or replaced by another President or Prime Minister. Former Prime Minister Imran Khan, who was sworn in in 2018, was thrown out of office in 2022, leading to political instability and chaos in the country. On April 11, Imran Khan was forced to resign after losing a no-confidence vote against his leadership. He was the first Prime Minister to be removed from office by a vote of no confidence, while others have been executed, ousted from power by military coups, exiled, or detained.

In a scandal known as the Panama Papers Scandal, the Supreme Court removed Imran Khan's predecessor, Nawaz Sharif, from his post as Prime Minister. Shehbaz Sharif, the brother of the former Prime Minister Nawaz Sharif, has been elected as the Prime Minister of the country. Pakistan's unstable and unpredictable politics has resulted in an economic and political disaster.


The Pakistani military has always intervened with internal politics, in 1958 General Ayub Khan abolished the 1956 constitutional order and this marked the Pakistan army's first move into politics. Three more military takeovers occurred later, in October 1958, July 1977, and October 1999. These coups eventually led to the unlawful and brutal removal of elected prime ministers as well as the clear deterioration of constitutional principles. Imran Khan seemed to have practically everything working in his favour when he was Prime Minister. He claimed to bring about "transformation" in the country and to establish a "new Pakistan." In Pakistan, no prime minister has ever served a full five-year legislative term, and Imran Khan appeared to be the first. However, the reason his position appeared to be so safe also explains his downfall. He attained power with the assistance of Pakistan's powerful army and intelligence services and now he has lost power because of them. “No matter how many times you call yourself neutral, history will blame you for what you did with the country,” he stated, referring to the army's lack of support for him during his removal from office.


Frequent change in leadership, lack of policy and weak governance has all contributed to the country's extremely challenging economic conditions. The political instability leads to upheavals which then distracts the country from the economic condition.


The recent political upheaval in the country occurred at a time when Pakistan's economy was in crisis, the country's political instability aggravated the economic situation. Pakistan is on the verge of economic catastrophe as a result of diminishing foreign exchange reserves and rising inflation. Pakistan has been facing a challenge as it has the highest forex liquidity gap and a declining currency. The survival of the state is at jeopardy. The country continues to rely heavily on aid and help despite increasing foreign debt, diminishing foreign exchange reserves, and high inflation. The economic crisis has hit Pakistan at a period of unprecedented political instability. At this point, political insecurity will only worsen economic uncertainty. Even if elections are held as according to the plan in next year, 2023, the ruling coalition would be under great pressure to provide economic assistance to the people or be at risk of economic mismanagement. Fiscal imbalance, a shortage of human and capital capital, rising foreign debt, a low currency rate, natural calamities, and other factors all contribute to Pakistan's uncertain growth in the economy. According to the World Bank, half of Pakistan's population, or over 55 million people, live below the poverty line in the densely populated country.


According to a Natixis research that took into account the needs and availability of external funding, Sri Lanka, which is already in debt, is followed by Pakistan and Lao (PDR) in terms of the largest forex liquidity imbalance. All of their rankings and analyses suggest that Sri Lanka is followed by Pakistan and Lao (PDR) and has the greatest external financing deficits among Asian frontier markets. In terms of fiscal vulnerability, the data points to Sri Lanka, Pakistan, and Lao (PDR) as the three most vulnerable nations. For these nations, fiscal consolidation will be more challenging due to the increased size of their interest payments as a result of the sharp rise in the cost of local financing.


Pakistan is burdened by unsustainable debt. Pakistan's policy decision has resulted in large amounts of money being spent on non-developmental and economically un-viable projects. The China-Pakistan Economic Corridor (CPEC) has fueled the debt burden while also opening the door to ever-increasing external loans. Pakistan relied heavily on foreign loans rather than its own domestic and indigenous institutions, which has now exacerbated its difficulties.


For numerous years, there has been relatively limited investment in the country, resulting in increased unemployment. The primary economic institutions entrusted with carrying out economic policy are either incapable or slow to execute the policies. The majority of these institutions are also in financial distress. There has been a great deal of variation and inequality in how these institutions have implemented policies in Pakistan. This is because connections and bribes are major factors in the decision-making process. Corruption is widespread in Pakistan and the common people bear the cost of inefficiency and corruption.


Adding to the economic problem, the floods have devastated Pakistan which has caused a lot of damage. The floods may not have harmed the elite, but they will have had a negative effect on the economy that will be worse than any relief that Pakistan gets. Economic growth will be impacted by floods. The devastating floods in Pakistan have cost the country’s economy by washing away the agricultural crops and displacing common people.


Pakistan will face turbulent times in the next few years. A lack of bold and reasonable policy solutions in a timely manner may adversely affect the economic crisis, increasing political uncertainty. The forthcoming elections in 2023 will have a negative influence on the economy as well. The politicians should work together in solving the crisis of Pakistan, to improve the economic condition of the country.




(Akasha Usmani is currently completing her Masters in Conflict Analysis and Peacebuilding from Jamia Millia Islamia and is also a writer at Global Order).

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