Pakistan marks Independence Day amid deepening political crisis
Pakistan celebrates its 75th Independence Day on Sunday amid a deepening political crisis, further straining its already struggling economy.
The South Asian country, which along with neighboring India gained independence after the end of British colonial rule in the subcontinent in 1947, is mired in escalating tensions between the government and the opposition, the latter demanding early elections which the former rejected. .
As the Pakistani rupee hits an all-time low against the US dollar, the country’s already strained economy faces soaring inflation, mounting debts and depreciating foreign exchange reserves.
Although the economy has shown signs of recovery in recent weeks, political and economic analysts nevertheless consider the developments to be “temporary” if the current political instability continues.
“The current political instability has added fuel to the fire in terms of the economy,” said Shahid Hasan Siddiqui, an economist based in Karachi.
“New investments – local and foreign – are drifting away with increasing flight of capital, including smuggling of dollars,” Siddiqui told Anadolu Agency, adding that multinational companies are also taking a “wait-and-see” approach due to to the current political uncertainty.
Supporters of former prime minister Imran Khan, who was ousted in a no-confidence vote in April, have threatened to take to the streets again if his demand for a snap election is not met within a month. month.
“If the simmering uncertainty continues, it will further affect the overall state of the economy, as the government will not be able to fully focus on reviving the economy,” Siddiqui said.
Echoing a similar view, Waqar Masood Khan, Pakistan’s former finance secretary, said political uncertainty had rocked the country’s stock and forex markets, sparking a flurry of speculation.
“Panic” and “speculation” were the main agents behind a 20% devaluation of the rupee, which could have been avoided, Masood told Anadolu Agency.
“This could be gauged by the fact that even with few signs of recovery, the rupiah has regained significant ground against the dollar over the past two weeks,” he observed, forecasting a further rise in the value of the rupiah after the publication of the long-standing loan tranche by the International Monetary Fund (IMF) at the end of August.
Khaqan Najeeb, an Islamabad-based economist, said “political certainty is the necessary condition for economic certainty in a country.”
Opportunity for structural reforms
The nation carved out of the subcontinent as the homeland of Muslims began its journey in 1947 amid tensions with India over the Jammu and Kashmir issue, fears of survival due to economic hardship, the rush of refugees and unleashed communal riots.
According to historians, in one of the largest shifts in the world to date, more than 6.5 million Muslims from different parts of India migrated to Pakistan.
Now the only Muslim country with a nuclear arsenal and a population of over 229 million, Pakistan began its journey without an official secretariat or accommodation.
Historians believe that despite the challenges, the country has achieved many feats over the past 75 years in the fields of science and technology, medicine and sport.
The economy, however, has long been a sticky issue, with economists continually calling for short- and long-term structural reforms.
The state of the economy has further collapsed as terrorist attacks and suicide bombings in the country have inflicted $140 billion in financial and infrastructural losses since 2002, according to official statistics.
A devastating coronavirus pandemic and the Russian-Ukrainian war have brought the country’s faltering economy to its knees.
The IMF, which announced a $6 billion bailout for Islamabad in 2019, agreed to extend the program until June 2023 with an additional $1 billion loan.
Siddiqui, for his part, sees the extension as a “respite” for the government, urging Prime Minister Shehbaz Sharif to “exploit this opportunity and use this time-saving for drastic economic reforms, which are the only permanent solution to the financial difficulties of the country.”
Unfortunately, he argued, successive governments have adopted the policy of “borrowing loans and spending on luxuries”, in addition to giving benefits to the country’s elite.
Dismissing the idea that new elections can be a solution to the current political and economic instability, Siddiqui said “tensions will remain very much as no political party will accept defeat.”
Najeeb, a former adviser to the Ministry of Finance, estimated that the country, in the short term, “must” stay the course of the IMF program, and ensure that the current account deficit is managed between 1% and 2% of GDP.
This, he added, will ensure that Pakistan’s gross financial requirements will remain manageable until the financial year 2023.
“In the medium-term agenda, Pakistan needs to think about serious energy sector reforms, privatization drive and improving the country’s agricultural productivity to ensure more import substitutions and income for the most vulnerable segments of society,” he said.
Economic instability behind political uncertainty
Kaiser Bengali, a Karachi-based economist, believes it is actually economic instability that has led to the continued political uncertainty in the country.
“Our focus has been to borrow loans and meet expenses beyond income. This has not only shaken the economy but subsequently led to political fissures,” Bengali said during a interview with Anadolu Agency.
Calling for a reduction in the country’s colossal import bill, he insisted there should be a “strict balance” between imports and exports.
Islamabad reduced its monthly import bill to $5 billion in July from $7 billion in June, leading to a sharp rise in the value of the rupee.
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