According to the US think tank United States Institute of Peace (USIP), political uncertainty in Pakistan may further worsen the economic crisis facing the country. Pakistan’s current government, comprising an unwieldy multi-party coalition led by Prime Minister Shehbaz Shariff of the Pakistan Muslim League Newaz (PML-N) party, faced a new setback in July after losses in mid-month special elections for 20 constituencies in the country’s heartland province of Punjab. Furthermore, the credibility of Shahbaz government was seriously dented when its efforts to retain power in the province were foiled by the Supreme Court, which ordered the election of Chaudhry Pervaiz Elahi, an ally of former Prime Minister Imran Khan’s, to the position of Chief Minister.
The political turmoil was further accentuated by the latest ruling of the Election Commission of Pakistan that former Prime Minister Imran Khan and his Tehreek-e-Insaf (PT) party had violated campaign finance rules, a finding that could lead to his disqualification from electoral politics. The think tank concluded that economy had become the main issue driving voters’ sentiments in Pakistan. This was most evident in the losses the PML-N suffered in the recent Punjab elections. As the economic situation worsens, the “average citizen of Pakistan is suffering” under “the weight of the IMF-mandated removal of energy subsidies and other measures besides unbridled inflation and steep depreciation of PKR against dollar.” The problem was that while the Pakistani economy is on the edge, the IMF has not yet released the next tranche of the Extended Fund Facility. At the same time, Pakistan’s traditional partners such as Saudi Arabia, UAE & China do not appear keen to shore up the country’s foreign reserves as in the past. That is perhaps because of the widely held perception that “Pakistani economy is a sinking boat” and “is traversing the path of Sri Lanka’s crisis hit economy.” The PML- N government has stated that the country will need around USD 5 billion by the end of FY 2022-23 on top of the IMF loan, but nothing has come so far. Many analysts feel that while Pakistan is not in as dire a condition as Sri Lanka, but time was running out. Lack of bold and rational policy responses in a timely manner may accentuate the economic crisis which could further intensify political uncertainty.
The recent optimistic statement by Finance Minister, Miftah Ismail, in a press conference after meeting the Karachi Chamber of Commerce and Industry (KCCI) that Pakistan’s economic hardships might not continue beyond September is sort of hoping against hope. Though Ismail expressed hope of reviving the economy after obtaining loans from global institutions and friendly countries, the current situation is far from such realities. Pakistan is on the verge of economic collapse due to depleting foreign exchange reserves and spiraling inflation. Its forex reserves dropped to USD 8.24 billion. The rate of unemployment is reigning very high, while inflation has skyrocketed. Islamabad’s inability to arrest the falling value of its currency (PKR) is evident from the Minister’s efforts to convince the KCCI members that “Neither the State Bank nor I have directly intervened (to bring the dollar down). The depreciation of PKR still continues and the exchange rate peaked at PKR 225 per USD. The supply and demand of currencies depend on trade deficit which has widened and debt servicing requirements had increased over time.
In spite of the agreement with the IMF for the loan, business community as well as the general public are apprehensive about steering the country out of the crisis. They had lost trust in the capability of the country’s economic managers to calm market fears. Islamabad’s latest monthly economic outlook for the month of July underlined that the inflationary and external sector risks were building up macroeconomic imbalances in the economy. It is no surprise that the Pakistani economy seems to be going from bad to worse in the wake of political uncertainty and economic mismanagement. The over reliance of the country on China is also being seen with doubts, as China is not extending the desired help to stop the economy from going the Sri-Lankan way. People of Pakistan are getting frustrated while the government is desperately seeking a way out of the crisis. Islamabad’s frantic lobbying efforts for funds could be seen from the fact that Army Chief General Qamar Javed Bajwa tried to reach out to Saudi Arabia and the UAE as part of his efforts to pull the country out of the current economic crunch, even after seeking USD 1.7 billion from the IMF. Earlier in April, Prime Minister Shehbaz Sharif travelled to Saudi Arabia, but returned empty-handed as Riyadh did not given any firm assurance, much like the UAE, which was reluctant to rescue Islamabad. Instead of providing loans, the UAE is offering to buy shares and assets, indicating Pakistan’s precarious forex position. Islamabad’s Finance Minister has reiterated the government’s assurance to the public that the crisis will be over in the next 2-3 months. He also contended that the rupee will stabilize vis-a-vis the dollar soon – a claim that was repeatedly ignored by the market. Although its leaders are happy to point out that Pakistan is not close to default, in effect, the country continues to teeter a hair’s breadth away from that grim eventuality that Sri Lanka faces today.
Against this backdrop, Pakistani political parties were engaged in a political blame game and cross allegations of corruption against each other, while the economy continues to slide. Rather than taking economically rational and hard decisions for structural reforms and shunning populist measures, the leaders are looking up for help from development partners. Islamabad is now looking up to repair its relationship with the US, but that will require rebalancing its ties with China. Pakistan would not find it easy as it has created very skewed dependence on China, which has not brought sufficient benefits. This over dependence of Pakistan on China was based on mutually shared anti-India stance rather than an economically rational engagement, as it is clear from the failure to bring desirable economic benefits to Pakistan. Political uncertainty and global economic conditions have further exacerbated the nature of Pakistan’s crisis.