Pakistan is in the middle of the worst economic crisis as forex reserves have plunged to a record low, and inflation is inching toward 30 percent, the highest in five decades. Failing to have fruitful negotiations with the IMF delegation, Pakistan is facing a balance of payment crisis. The cash-strapped government has hiked fuel prices and is working on cutting subsidies to secure much-needed funds from the IMF.
Pakistan’s economic struggles have persisted for over three years, with the suspension of IMF’s bailout package in 2020, losses from floods in 2022, and political mismanagement leading to an economic crisis in 2023. Pakistan is in a dire position of bankruptcy. Petrol pumps are running short of fuel, and some have even gone dry. The essential commodity prices are skyrocketing, leaving the majority of Pakistan’s population starving. Pakistanis find it hard to make their ends meet with the simmering economic crisis.
Damages caused by the unprecedented and devastating floods last summer pose a challenge to the government in adhering to some of the IMF’s bailout conditions, such as raising the gas and electricity charges and enacting new taxes.
The current scenario in Pakistan is analogous to Hillary Clinton’s statement, “you can’t keep snakes in your backyard and expect them only to bite your neighbors. Eventually, those snakes are going to turn on whoever has them in the backyard.” The Pakistan-reared militant groups are now showing their fangs to the government, adding fuel to the prevailing disturbances, and challenging the sovereignty and integrity of the nation.
Pakistan has had 29 Prime Ministers since its independence, and none has served a full-length tenure in office. Eighteen times Prime Ministers were ousted from their positions on the allegations of corruption or by military coups. Pakistan is also known as a poor country with a rich army. The Pakistani military has not only intervened in the country’s politics and governance but also runs more than 50 commercial enterprises in the country. According to official documents submitted to parliament, the Pakistan Army operates a business worth more than Rs 1.5 crore. The Pakistani military is perhaps the only entity with a domestic business empire in the world. The military’s economic prowess and an unstable government intervene in the country’s governance.
Apart from economic and political turmoil, Pakistan also struggles with social problems and resource constraints. Pakistan has yet to focus on industrialization and modernization of technology for economic progress. Pakistan’s former Finance Minister, Miftah Ismail, admits that Pakistan has no good universities that could render quality education. The state suffers from law and order problems that hinder the flow of foreign direct investments. As a result, it leads to meager information and communication technology exports. Pakistan has put only minimum effort in turning its human resource into an asset to the country.
One of the reasons for the country’s balance of payments crisis is the negligence of the agriculture sector. Agriculture is one of the major sectors of Pakistan’s economy, contributing 24% to the Gross National Product (GNP) and 19% to the Gross Domestic Product (GDP). The development of the agricultural sector will make the country self-sufficient in terms of food and increase the potential for exports that bring in valuable foreign exchange. The Gwadar port has the capacity to offload 7 billion tonnes of cargo per year, but the lack of modern technology has kept the world from being attracted to the facility.
India is set to be the fastest-growing economy, while Pakistan is on the brink of economic collapse. According to the World Bank, Pakistan’s total external debt stocks increased to $130.433 billion. Pakistan’s debt-to-GDP ratio is 70 percent, and a large amount of government revenue is earmarked for interest payments. The bilateral trade between India and Pakistan stands at $1.35 billion during April-December 2022 against $516.36 million in 2021-22. However, it is extremely low compared to India’s overall trade volume of $1 trillion in 2022. Given the low trade volume between the two countries, it will not have a noticeable impact on India in economic terms.
Pakistan’s internal and political turbulence is a lesson for its neighbors on how jingoism and majority politics can devastate the country’s social and economic fabric. Pakistan should focus on making a significant change, improving the country’s security, and ensuring an investment-friendly environment that attracts more foreign direct investment (FDI) rather than relying heavily on foreign aid. It must encourage domestic investment and refrain from providing manpower to fight proxy warfare. Pakistan can progress by investing in research and development (R&D) to foster innovation and boost labor productivity. The country should also enhance its international image as a desirable destination for tourism and industry.
International support and observations from the IMF could provide some breathing space in the short term for its crippling economy. The IMF’s conditions look beyond the wildest dreams, but it has to swallow the bitter pill right now to mitigate the future crisis with imminent effect. It is the only nuclear-armed state currently struggling with the economic crunch and political instability. Pakistan could find a way to get out of the vicious circle of chaos and debt if it understands the geopolitical realities and put its sectarian national ideology aside and focus on what is actually vital for economic prosperity and political stability. The onus is on Pakistan on how it wants to portray itself on international platforms. The people and stakeholders must choose which path of development they want to drive on. Pakistan’s economic crisis cannot be resolved overnight. The following months will be critical times to sail through for the current administration as the rupee is expected to decline further, leading to higher inflation.
[Photo by Farzana Ahmad Awan, via Wikimedia Commons]
Gajjela Shiva Kumar is pursuing an M.A. in Politics and International Studies at Pondicherry University. The views expressed in this article are those of the author and do not necessarily reflect TGP’s editorial stance.