Pakistan’s Economic Crisis & Political Instability is a Hard Hit-Wicket by Imran

Pakistan is facing a looming economic crisis that threatens to push the country into default and destabilize the region. The crisis is not a result of external shocks or natural disasters, but of poor policy choices and mismanagement by the government of former Prime Minister Imran Khan and his party, the Pakistan Tehreek-e-Insaf (PTI).

Khan came to power in 2018 with a populist agenda of fighting corruption, reforming institutions and uplifting the poor. He promised to create an Islamic welfare state that would provide health, education and social security to all citizens. He also vowed to end Pakistan’s dependence on foreign loans and aid, and to pursue an independent foreign policy that would balance relations with the United States, China, India and other countries.

However, Khan soon realized that his lofty ambitions were not matched by his economic acumen or political savvy. He inherited a fragile economy that was burdened by a large fiscal deficit, a chronic current account deficit, a low tax-to-GDP ratio, a high debt-to-GDP ratio, a weak currency, low foreign exchange reserves, high inflation, low growth and rampant unemployment. Instead of addressing these structural problems with pragmatic and comprehensive reforms, Khan opted for ad hoc and inconsistent measures that only exacerbated the situation.

One of his biggest blunders was to delay seeking an IMF bailout package that could have provided much-needed relief and credibility to the economy. Khan initially rejected the IMF option, claiming that it would impose harsh conditions that would hurt the poor and compromise the country’s sovereignty. He tried to secure alternative sources of financing from friendly countries like Saudi Arabia, China and Qatar, but these were insufficient and unsustainable. He also launched an ill-conceived austerity drive that slashed public spending on development and social sectors, while increasing taxes and utility prices for the masses.

By the time Khan finally agreed to an IMF program in 2019, after months of dithering and bargaining, the economy had already deteriorated significantly. The IMF deal came with stringent conditions that required further fiscal consolidation, monetary tightening, exchange rate flexibility and structural reforms. These measures were necessary to restore macroeconomic stability and confidence, but they also inflicted short-term pain on the economy and the people. The IMF program was also disrupted by the Covid-19 pandemic, which hit Pakistan hard and forced the government to seek debt relief and additional support from international lenders.

The economic crisis has had severe social and political consequences for Pakistan. The poverty rate has increased from 24% in 2018 to 40% in 2021, according to the World Bank. The unemployment rate has risen from 5.8% in 2018 to 9.6% in 2021, according to the Pakistan Bureau of Statistics. The inflation rate has averaged 9.2% in 2021, compared to 3.9% in 2018, according to the State Bank of Pakistan. The growth rate has contracted from 5.5% in 2018 to -0.4% in 2020, before recovering slightly to 3.9% in 2021, according to the IMF.

The economic crisis has also eroded Khan’s popularity and legitimacy as a leader. He has faced widespread public discontent and protests over his handling of the economy, as well as his failure to deliver on his promises of accountability, justice and reform. He has also faced mounting opposition from rival political parties, civil society groups, media outlets.

Pakistan’s economic crisis is not inevitable or irreversible. It can be overcome with bold leadership, sound policies and international cooperation. The new government that will emerge after the next general elections in 2023 will have a historic opportunity and responsibility to steer the country out of this quagmire and put it on a path of sustainable and inclusive development.

The new government should pursue a three-pronged strategy to address the economic crisis.

First, it should resume and complete the IMF program that was suspended due to the pandemic. This will help restore macroeconomic stability, rebuild foreign exchange reserves, reduce debt burden and improve investor confidence. It will also unlock access to other sources of financing and assistance from bilateral and multilateral partners.

Second, it should implement structural reforms that will enhance the productivity, competitiveness and resilience of the economy. These include improving tax administration and collection, strengthening fiscal federalism and decentralization.

Third, it should invest in human capital and social protection that will improve the living standards and well-being of the people. These include expanding access to quality education, health care and social security, especially for the poor and vulnerable segments of the population. These will also help create a more skilled, healthy and productive workforce that can drive economic growth and innovation.

Pakistan’s economic crisis is a self-inflicted wound that can be healed with the right treatment. The new government should seize the opportunity to break the vicious cycle of boom and bust that has plagued the country for decades, and usher in a new era of prosperity and stability for its people and the region.

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