PAKISTAN is facing a complex web of economic challenges. Indeed, much has been written and debated about Pakistan’s dependency on foreign aid, a vicious cycle of IMF loans, rising external and public debt, fiscal and current account deficits, import reliance, an undiversified export base, difficulties in attracting foreign direct investment (FDI), structural and institutional weaknesses, unstable fiscal policies, unproductive expenditure and a pressing need for tax reforms.
There is no denying the fact that these are vital challenges in Pakistan’s economic environment. However, it is crucial to recognize that political stability is the cornerstone of a robust economic framework. It is impossible to achieve sustainable economic development without a secure political base where policies can be planned and executed.
The global landscape shows that countries plagued by political instability have bigger economic development challenges compared to countries with functional political structures. Venezuela’s economic collapse is a stark reminder of how political turmoil can destroy an economy. Frequent and abrupt changes in government, policy reversals and corruption led to hyperinflation, massive unemployment, poor governance and a collapse in public services. Countries such as Singapore and South Korea present economic success stories underpinned by sustained political stability which supports consistent policy implementation and long-term planning.
In Pakistan, politicians are often blamed for the country’s economic woes due to their failure to address pervasive economic challenges. This includes neglecting the creation of long-term sustainable policies, not overhauling the flawed structures, avoiding tax reforms, their over reliance on foreign aid and loans, efforts to curb corruption and unnecessary expenditure. Indeed, these issues, if not addressed, perpetuate systemic problems and hinder economic progress that require comprehensive and forward-thinking solutions.
The political leadership is also criticized for its short-sightedness and prioritization of immediate gains over the formulation of long-term, sustainable policies. If one analyzes the mindset behind short-termism, it becomes evident that an uncertain political environment pressures politicians to focus on short-term successes to maintain their positions of power, or to secure their vote for the next elections, rather than investing in sustainable, long-term economic strategies. The political instability in Pakistan, frequent changes in government and external interference lead to discontinuity in economic and social policies. The effectiveness of governance is further compromised by the establishment of fragile alliances or coalition partners, resulting in compromises that dilute government effectiveness.
Political uncertainty also led to strained diplomatic ties and long-term foreign trade agreements and partnerships. Even your closest allies won’t trust to invest during times of political instability. This has been made clear by the recent statement of visiting Chinese Minister Liu Jianchao, who said, “Only when all political parties in the country join hands to ensure political and social stability can there be sustainable development.” Investors and international stakeholders often hesitate to commit resources due to the unpredictable political climate, affecting economic growth and development.
A weak, uncertain and unstable government cannot win the confidence of investors, both domestic security because capital seeks security and political instability erodes security. Without a secure, confident and predictable political environment, investment cannot be secured and the creation of parallel structures will not yield positive economic results.
As the political tenures of the parties are not secure the politicians tend to make popular fiscal policies instead of sustainable economic reforms. These policies result in fiscal imbalances, ballooning deficits and unsustainable debt levels. For instance, Pakistan’s recurring cycles of IMF bailouts highlight the deep-rooted fiscal issues. Each bailout comes with stringent conditions that further strain the country’s economic sovereignty and long-term growth prospects. A people-friendly, growth-oriented and development-focused economic policy cannot be expected from politicians in a fragile political environment. Only functional democracy and political stability can pave the way for economic stability in Pakistan.
—The writer is Assistant Director, NUST Institute of Policy Studies (NIPS)
