Why Pakistan faces a persistent economic crisis? | By Golam Rasul, Dhaka


Why Pakistan faces a persistent economic crisis?

PAKISTAN is facing one of its worst economic crises currently. The country’s foreign exchange reserves have fallen to about USD 3 billion, which can cover only less than a month’s worth of imports. The fiscal deficit is growing, public debt service is rising and the balance of payments situation is deteriorating day by day. The current public debt is approximately 74% of GDP, with external debt exceeding USD 113 billion or approximately 45% of GDP. In 2022, the country had to pay around USD 12 billion to service its external debt and it may rise further in 2023. The Pakistani Rupee has fallen more than 35% in the last year. The price of essential goods has increased rapidly. The general masses are struggling to survive due to the high cost of living. The economic crisis also intensified the political crisis.

In order to bail out from the economic crisis, the Pakistan government has been in negotiation with the International Monetary Fund (IMF) for over a month, but no agreement has been reached. If the IMF loan is not approved quickly, the country’s economy may face serious consequences including default on foreign loans. This is, however, not the first time that the country has experienced an economic crisis. Since its independence in 1947, the country has gone through various economic crises and sought continued assistance from the IMF and other bilateral and multilateral donors. It has already received its 13th bailout from the IMF.

Pakistan is a big country with good natural resources, well-developed agricultural and irrigation infrastructure, and a hard-working population. Despite having good resources and a large hard-working population, why does the country suffer from frequent economic crises even after 75 years of independence? To understand the underlying causes of the recurring economic crises, we must first understand the country’s politics, particularly the civil-military relations and its’ democratic institutions as politics and economics are linked closely and influence each other.

After the demise of Mohammed Ali Jinnah and Liaquat Ali Khan, the civil and military bureaucratic forces consolidated their power. The military has ruled the country over 30 years in its 75-year history. Due to political instability, the country was unable to develop a robust and vibrant political process and democratic institutions. The political instability and resultant unrest and disruptions affected economic performance badly. The dominance of the military in the decision-making process due to perceived internal and external threats have marginalized the political institutions and civil bureaucrats in the decision-making process.

Unhealthy and unbalanced civil–military relationships and power-sharing mechanisms between them have produced several contractions and conflicts in Pakistan’s politics and economics. Influential families and their allies have always dominated political parties. The elite group holds strategic positions in the bureaucratic, civil, political, military and economic decision-making structures as well as controls over the country’s economic, military and political institutions. They have collaborated, competed and collided in various ways to gain and maintain power and authority.

Muhammad Ali Jinnah, in his Presidential Address to the Constituent Assembly of Pakistan on August 11, 1947, stated that “If we want to make this great state of Pakistan happy and prosperous, we should wholly and solely concentrate on the well-being of the people, especially the masses and the poor.” However, the irony is that shortly after independence, the elites – including civil, military, political, business, and the landed elite, captured the state of Pakistan and they forgot masses and the poor. With the elite capture, the country’s economy has been marked full of contradictions; it produces sophisticated nuclear weapons and missiles while failing to provide adequate food and nutrition to the people. Such contradictions are reflected in different parts of the economy and society. For instance, while over a quarter of Pakistanis are struggling to survive and standing in a long queue for cheap food, another class awaits in long lines for an expensive cup of coffee from a Canadian multinational coffee shop.

The elite capture has led to a fundamental political contradiction in the country. In politics, the richest represent the poorest; the industrialists represent the labour class; and the feudal class represents the peasants. Economic policymaking is largely shaped by these contradictory political and economic realities. When developing and implementing policy, the state has to prioritize the interests of the powerful political groups, the military establishment, the industrialists, and the landed elite who have close connections with the corridors of power. As a result, issues like land reform, poverty, inequality, health, education, or nutrition have not been a serious priority in the country’s policy.

To avoid and overcome future economic crises, major economic reforms – based on basic economic principles rather than the priorities of the elite class – would be needed. Again, to improve economic management, it is necessary to improve governance and resource allocation, reduce corruption, and bring transparency and accountability. Along with major economic reforms, major political reforms will also be required in line with Jinnah’s advice – focusing on the well-being of the general masses rather than the interests of the elite groups. Finally, the civil and military establishments should have a balanced and healthy relationship following the democratic principles as expected by Jinnah.

—The writer is Professor at the Department of Economics, International University of Business Agriculture and Technology in Dhaka, Bangladesh.

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