Political Instability and Its Impact on the Economy of Pakistan

Political instability is a recurring issue that has significantly impacted the economy of Pakistan over the years. Our country has faced numerous challenges in establishing a stable political environment, which has hindered its economic growth and development. Political instability in Pakistan has been influenced by various factors, including military interventions, weak democratic institutions, regional and ethnic tensions, and socioeconomic disparities. 

Historical Perspective

Pakistan’s history is marked by periods of political turmoil, including military coups, weak democratic institutions, and frequent changes in government. These factors have led to a lack of policy consistency, weak governance, and a fragile political landscape, all of which have profound implications for the economy. Pakistan faced challenges in establishing stable democratic institutions in its early years. Within a decade of independence, the country experienced its first military coup in 1958 when General Ayub Khan seized power, setting a precedent for military intervention in politics. The 1970s witnessed a power struggle between the eastern and western wings of Pakistan, leading to the secession of East Pakistan (now Bangladesh) in 1971. The period also saw the assassination of political leaders, including the country’s first Prime Minister, Liaquat Ali Khan, in 1951, and Prime Minister Zulfikar Ali Bhutto in 1979. Since 2008, Pakistan has seen a series of democratic transitions, with the Pakistan People’s Party (PPP) and Pakistan Muslim League-Nawaz (PML-N) alternating in power. However, these periods have been marred by allegations of corruption, political instability, and confrontations between the civilian government and military establishment.

Current Political Landscape

Pakistan has witnessed several protests and demonstrations by opposition parties, particularly the Pakistan Democratic Movement (PDM). The opposition parties rallied against the government, citing allegations of electoral fraud, economic mismanagement, and a lack of governance.

 The government led by Prime Minister Imran Khan faced challenges in terms of governance and policy implementation. There were concerns raised regarding the government’s ability to effectively address economic issues, corruption, and the management of key sectors such as energy and health. The political unrest in Pakistan during these years (2022–2023) is an ongoing series of political crises after the ousting of former Prime Minister Imran Khan through a no-confidence motion in April 2022.

Investor Confidence

Political instability erodes investor confidence, both domestically and internationally. Uncertainty about the continuity of policies, frequent changes in government, and a lack of transparency create an unfavorable investment climate. Political instability has a significant impact on foreign direct investment (FDI). International investors evaluate the stability of a country’s political environment before committing capital. Unstable political conditions in Pakistan have deterred foreign investors, leading to lower FDI inflows. Reduced FDI limits access to technology, capital, and expertise, which are crucial for economic growth and development. Political Instability and investments cannot co-exist. Political instability also affects domestic investment. Uncertainty about the political future and policy direction makes local businesses hesitant to invest and expand their operations. Lack of domestic investment hinders job creation, limits economic growth, and perpetuates a cycle of instability.

Policy Inconsistencies

Transitions between governments often result in policy reversals, creating an uncertain business environment. Policies related to taxation, regulation, and trade undergo frequent revisions, leaving businesses struggling to adapt and plan. These inconsistencies undermine investor confidence and hinder long-term economic planning. With each change in government, there is a risk of policy reversals. Reforms and initiatives undertaken by previous administrations may be discontinued or modified, leading to disruptions in various sectors of the economy. This lack of policy consistency undermines investor confidence and makes it challenging for businesses to adapt and thrive.

“Over the years, Pakistan has showed inconsistency and uncertainty in policies, due to which economic growth has not been in sync with human development,”  

Infrastructure Development:

Political instability also affects infrastructure development in Pakistan. Frequent changes in government priorities and lack of policy continuity disrupt the execution of infrastructure projects, leading to delays and cost overruns. This not only hampers economic progress but also affects the country’s ability to attract foreign investment and improve trade competitiveness. Pakistan faces significant challenges in terms of inadequate infrastructure across various sectors such as transportation, energy, water supply, and telecommunications. Insufficient road networks, outdated power grids, limited access to clean water, and weak digital connectivity hinder economic activities and limit productivity. The lack of quality infrastructure has a direct impact on the country’s competitiveness, making it difficult to attract investment and stimulate economic growth.

 Socioeconomic Inequalities

Political instability inflames socioeconomic inequalities within Pakistan. The focus of governments during unstable periods often shifts towards political survival rather than addressing pressing economic and social issues. As a result, poverty rates remain high, job creation is limited, and income disparities widen, leading to social unrest and further political instability. Socioeconomic inequalities, exacerbated by political instability, can fuel social unrest and discontent. When certain segments of the population feel marginalized and excluded from economic opportunities, it can lead to social unrest, protests, and even political instability. This creates a cycle where political instability and socioeconomic inequalities reinforce each other.

Pakistan’s HDI value has only increased by 39 percent in the past 27 years. Which is the second lowest HDI value among all South Asian countries.

Fiscal Challenges

Political instability impacts fiscal discipline and macroeconomic stability. Frequent changes in government can disrupt budgetary planning, increase government expenditure, and hinder the implementation of necessary reforms. This leads to fiscal imbalances, high levels of public debt, and inflationary pressures, negatively impacting the overall economy. Political instability can contribute to an increase in public debt. Uncertain political environments and unstable economic conditions can lead to fiscal deficits, necessitating borrowing to meet expenditure requirements. The accumulation of public debt, particularly if it is not effectively managed, can strain the fiscal position, increase debt servicing costs, and limit fiscal space for productive investments.

External Relations and Aid

Political instability has affected Pakistan’s relations with other countries and international organizations. It has created uncertainty and reduced confidence in the country’s ability to honor international commitments, affecting foreign aid and assistance. Additionally, geopolitical factors can exacerbate political instability, further impacting economic stability. Political instability has also hindered Pakistan’s ability to secure foreign aid.

The impacts of political instability on the economy of Pakistan are written above from which it has been made clear that how it can destroy the economy of Pakistan. The lack of policy consistency, investor confidence, infrastructure development, and socioeconomic inequalities are among the key areas affected by political instability. To address these issues, Other than being driven by vindictive politics Pakistan needs to focus on strengthening democratic institutions, promoting good governance, and implementing consistent economic policies. By establishing a stable political environment, Pakistan can unlock its economic potential and ensure sustainable development for the benefit of its citizens. Otherwise, it will destroy Pakistan in no time.

Muneeza Imran
The author is pursuing contemporary studies at National Defence University, Islamabad.
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