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What irks Pakistan’s Economy?

Posted in Featured, View Point

Published on June 08, 2023 with No Comments

Former Prime Minister of Pakistan, Imran Khan’s arrest let to unprecedented violence pushing the nation to an almost civil war situation. Imran Khan’s party Pakistan Tehreek-e-Insaf (PTI) was drawing solace as an outburst of anger by Pakistanis against the arrest. However, there is also an undercurrent of people’s outrage against an almost dysfunctional government over other issues. One is the suffering of the people as a result of the current economic crisis.

Prices of certain essential commodities have increased over 500 percent. Videos on social media show that people are fighting on the streets for basic food items. Stampedes are reported to have taken place in markets across the country for a few bags of wheat. The Pakistan government has adopted a policy of pay-cuts apparently to reduce people’s purchasing capacity to strike a balance between demand and supply. On the whole, people’s lives are more miserable. Even after Imran’s release, they have unleashed violence.

There are certain maladies inherent to the system that evolved over the years. Apart from the legacy of partition, Pakistan also faces the problem of a feudal base of its political system. It has obstructed modernisation drives and growth of democratic space in the country. In parallel, independence claims of the provinces are now posing a serious threat to the country’s existence. The feudal base of Pakistan refers to the influence of large landowning families. About half of Pakistan’s GDP and a substantial amount of its export earnings are derived from the agricultural sector which is controlled by these families. They always retained their hold over Pakistan’s political system. These wealthy and politically powerful landowners were averse to any change in the existing order for fear of losing their power. They discouraged education because they thought that it might result in loss of their subjects’ unconditional loyalty. Despite such economic crisis, there are reports that suggest the terror funding has not stopped, as the leadership in power and the Army are too obsessed with anti India agenda.

Pakistan’s current GDP, per capita income, and GDP growth are the lowest in its neighbourhood; only war-torn Afghanistan’s economy is weaker.  Likewise, its unemployment and inflation rates are one of the highest in the region. The Human Development Index , which measures a country’s achievements through three basic dimensions – health, knowledge, and standards of living – placed Pakistan in the 161st position out of 185 countries in 2022. In other words, Pakistan is among the 25 countries with the lowest human development in the world.

It’s easier for the Pakistan Government  to call the economic crisis, especially the rise in food staples, with last year’s floods, which caused extensive damage to agricultural land, livestock, thousands of kilometers of road, and other infrastructure. This is partially right, as inflation touched a record high after the floods in August last year. But the war in Ukraine also halted grain supply to a number of countries, including Pakistan, resulting in a sharp increase in prices of foodgrains.  However, the leaders can’t deny that the situation was not stable even prior to these crises. According to a World Bank report on inflation and development in Pakistan, food-related shortages and transportation challenges caused by the floods and the war in Ukraine that impacted essential grain imports significantly contributed to the inflation, but so did a hike in fuel and oil subsidies. Pakistan relies on imported oil. A constant decline in the value of the country’s currency has resulted in much higher tariffs with every import of oil.

Pakistan’s over dependence on China too has a role. China charges high interest on loans that have burdened many developing countries including Pakistan. Instead of the promised economic growth through CPEC, China’s loans may have worsened Pakistan’s economic crisis.

Pakistan is at a stage, where its leaders have to ensure that the situation doesn’t go from bad to worse. For now, transparency over government spending is the need of the hour, along with restructuring the country’s economy from one that overspends on defense institutions and excessively relies on foreign debt with high interest to a model that is sustainable.

 

 

 

 

 

 

 

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