Since April 2022, or perhaps since its birth, Pakistan has been in a state of instability, be it its politics or economy. And guess what… unsurprisingly, it is on the verge of default once again that too in the political crisis.
The country has been experiencing a sharp devaluation of the currency against the dollar along with surging inflation. The unpopular government has hiked the petrol and commodity prices on IMF terms to secure a bailout package that is still ambiguous. Debts are increasing and reserves are decreasing, which is indicating an uncertain future.
Results of the recent by-elections in Punjab province have somehow reflected the sentiments of the masses towards the ruling parties. It would not be wrong to say that this coalition government has lost popular support because of regime change and sudden price hikes. Now, the federal government is in a state of disarray, a ditch ahead and fire behind. New elections could cause historic defeat and denying IMF terms could cause a default.
The biggest concern is not only economic fallout but political crisis as well. After the ouster of the former PM, the current government has been facing a severe backlash as the opposition is giving a tough time. Since their arrival, masses have been protesting on the streets and demanding new elections. The cherry on top, this government used state machinery, tear gas, and rubber bullets against the peaceful protestors. Well… this happens when politicians use the back doors to get into power.
Now, the questions are; will this unpopular government be able to survive the entire year? Will the allies grant the loans to save it from default? Will this government be able to sustain the pressure of the opposition and the public? Is this alliance government able to work despite differences among ruling leaders? Will the ongoing political turmoil in the country affect the falling economy?
Let’s spill the facts. According to the research, political instability throws adverse effects on economic growth. A country with already low reserves and a weak economy is more vulnerable to a political crisis. Research showed that political variables explain and predict economic factors. And Pakistan is one of the great precedents, has been an unstable economy with ever-unstable political situations. For now, it is uncertain whether the current government stays or early elections will announce soon and this uncertainty has resulted in a crash of the stock market and extreme devaluation of the rupee.
One other research found that one of the four political dimensions has robust and negative effects on economic growth and that one dimension is ‘instability in the regime.’ If we see the current regime in Pakistan, it is an alliance of over 12 political parties and how is it possible for these parties to stick together for the long term while having political differences? The current regime is in various conflicts, both internal and external, which is affecting the economy negatively.
It is a fact that without political stability, economic stability is not achievable. And for a developing country like Pakistan, there is a need for immediate steps to bring political peace to avoid defaulting. Not only for the short term but sustainable economic growth, politicians need to finish the political turmoil and sit together for the charter of the economy.
And in case it won’t happen then, YES, political instability can engulf the economy!
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