Why Pakistan faces a persistent economic crisis?

By Dr Golam Rasul
Published in Pakistan Today on April 02, 2023

 

Pakistan is facing one of its worst economic crises currently. The country’s foreign exchange reserves have fallen to about $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 percent of GDP, with external debt exceeding $113 billion or approximately 45 percent of GDP. In 2022, the country had to pay around $12 billion to service its external debt and it may rise further in 2023. The Pakistani Rupee has fallen more than 35 percent in the last year.

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 the Quaid’s’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 price of essential goods has increased rapidly. The general people are struggling to survive due to the high cost of living. The economic crisis also intensified the political crisis and further deepened the political and social unrest.

In order to get out of 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. The question arises why, despite having good resources and a large hard-working population, the country suffers 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 relationship, and its’ democratic institutions as politics and economics are linked closely and influence each other.

After the demise of Quaid-e-Azam Muhammed Ali Jinnah and Liaquat Ali Khan, the civil and military bureaucratic forces consolidated their power and took control of the country’s destiny.  The military has ruled the country for more than 30 years in its’ 75-year history. 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. Due to frequent military interventions in political power, the country was unable to develop a robust and vibrant political process and democratic institutions. Weak democratic and economic institutions, combined with frequent political and social unrest, affected economic performance badly.

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 in societies.

The military establishment played a pivotal role in national politics.  No Prime Minister has ever completed a full five-year term in the country’s history. Only three Prime Ministers could serve their longest four-year term. Imran Khan was recently ousted from power in a no-confidence vote.

It is generally believed that the military establishment supported Khan’s rise to power but he lost the military’s confidence when he took some independent decisions. This is thought to be the primary reason Khan lost his position as Premier. Nawaz Sharif, another elected Prime Minister, was ousted thrice in a civil-military conflict.  In 1971, the Pakistan Army was directly involved in a conspiracy to bring Zulfikar Ali Bhutto in the power against an elected leader, Sheikh Mujibur Rahman.

The Quaid in his Presidential Address to the Constituent Assembly of Pakistan on 11 August 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.”  The irony is that shortly after independence, the elites- civil, military, political, business, and landlords- captured the state of Pakistan, and they have forgotten the masses, and the poor.

With the elite capture, the country’s economy has been marked by contradictions and inconsistencies. While it produces sophisticated nuclear weapons and missiles it fails to  provide adequate food and nutrition to the majority of the population. This contradiction is reflected in the economy and society in various ways.  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. These contradictory political and economic realities heavily influenced economic decision making. The state has given  priority to the interests of the influential political groups, the military establishment, the industrialists, and the landed elites who have  close connections with the corridors of power. As a result, issues like land reform, poverty, inequality, health, education, or nutrition have not received  serious priority in the country’s policy.

Priority was given to modernizing a large army and constructing large infrastructure.  About one-third of the government budget goes to the military, civil administration and pension with limited resources available for development expenditures. Apart from the huge political power, the military has gained significant corporate business interests over the years. According to Ayesha Siddiqa’s book Inside Pakistan’s Military Economy, the military now controls approximately 23 percent of the corporate sector’s assets in the country. Two foundations, Fauji Foundation and Army Welfare Trust, represent two of the country’s largest conglomerates.

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 the Quaid’s’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.

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