Pakistan’s Economic Crisis And What Is Stalling The Country – OpEd
By Ahsan Qazi
Pakistan currently faces a severe economic crisis. Several factors, such as political instability, rupee tumbling, high inflation, energy shortages, and natural disasters as a result of climate change, are contributing to Pakistan’s economic crisis. The World Bank’s report “Pakistan: Flood Damages and Economic Losses Over USD 30 billion and Reconstruction Needs Over USD 16 billion – New Assessment” highlights that Pakistan’s estimated total cost of damages exceeds $14.7 billion, and the total economic losses are estimated to reach $15.2 billion. For Pakistan’s recovery, an estimated amount of $16.3 billion is needed.
Pakistan faces a severe economic crisis, and Pakistan’s estimated debt is $247 billion, which is 97% of its GDP. As Pakistan looks to the International Monetary Fund (IMF) for aid, the aid of $6 billion is insufficient to help Pakistan escape bankruptcy. Pakistan needs to pay at least $8 billion to not default on its loan. With exchange reserves extremely low, Pakistan barely has enough foreign currency in its reserves. It can only pay for three weeks of imports. Pakistan faces an economic meltdown, which could bring the nation to what Sri Lanka recently faced. This raises several questions; however, one of the key questions is, what led to the economic crisis in Pakistan?
John Ciorciari, a professor and associate dean for research and policy engagement at the University of Michigan’s Gerald R. Ford School of Public Policy, describes the current economic crisis of Pakistan in the following manner, “Pakistan faces a severe economic crisis and clearly requires external support. Foreign exchange reserves are dangerously low—enough to pay for only a few weeks’ worth of imports. Inflation is at its highest levels in decades, growth is sagging, and the central bank has raised interest rates sharply to address a weak currency. Food and fuel prices are causing real pain to ordinary people, and the country’s economic challenges are only exacerbated by the devastation wrought by the floods.”
Additional causes of Pakistan’s economic meltdown, which it has been facing for many years, escalated to extreme severity because of the recent political chaos. Its institutions were already weak; however, a weaker political system meant the failure of institutions in every sector and complete dissatisfaction among the masses. This is reflected in another assessment from Rane, a risk intelligence company that noted, “Where is Pakistan’s Economic Crisis Heading.” Rane’s assessment points out that “Pakistan’s economic crisis will worsen in the coming months as structural deficiencies and policy uncertainty raise recessionary risks in the country, which will exacerbate political instability and security challenges.” This is not surprising.
Ahmed Rashid, the author of Pakistan on the Brink: The Future of America, Pakistan, and Afghanistan, noted in his book in 2012 that, “After years of low revenue collection, failure to develop never industries and trading partners, joblessness, and chronic inflation, the economy is collapsing.” What has changed in Pakistan since 2012? Rashid highlighted the problems in 2012 are still apparent in the current economic crisis. He added, “Acute shortage of gas, electricity, and water have led to the closure of industry.” In 2023, the same facts were reported by two CNN journalists, Sophia Saifi and Julia Horowitz, who stated the high cost of essentials such as food and gas, nationwide power outage, hospitals, and transit systems affected because of power outages and lack of gas.
The weaker governance and chaotic political system that is now a norm, has led Pakistan to a severe economic meltdown. Pakistan is on the brink of a total economic collapse, resulting in societal collapse. Blind allegiances and alliances of political groups and parties that have been looting the country for many decades have made the political structure of Pakistan a nest of corruption that continues to go unchecked. Who will take accountability in Pakistan? Rashid provided an answer to this question as well in his book.
Reflecting on the civil government’s and political parties’ negligence, he writes, “They allow an unprecedented economic meltdown to worsen by declining to carry out reforms or listen to international advice. An energy crisis turns the light off for up to eighteen hours daily and undermines production.” The paradoxical nature of Pakistan requires a major fix. On the one hand, Pakistan looks for an economic bailout through foreign aid. On the other hand, it fails to implement internal institutional and political changes and refuses to listen to any international suggestion to fix its economic situation. Pakistan can no longer live in this paradoxical state, and continuing to live in such a state is suicidal for Pakistan. The root cause of it all—is corruption. Corruption has weakened and destroyed the nation’s key institutions.
Rashid, when comparing the rapid economic growth of India and China, states, “Pakistan, by contrast, has undertaken no major economic or social reforms since the early 1990s. The ruling elite refuses to tax itself or to invest its wealth in modernizing industry and agriculture; the state-run industries are bleeding the country; and the army refuses to cut its expenses, even as it has expanded its own tax-free businesses and property empires.” Only 1.8 million people paid income taxes in 2012. In 2021, according to the Federal Board of Revenue of Pakistan (FBR), the number of registered tax filers had grown to 7.1 million, out of which only 2.5 million were active tax filers. The total population of Pakistan is approximately 235 million. Pakistan’s condition has not changed since the 1990s, and the problems of the 1990s have worsened. For instance, Pakistan has relied on an IMF bailout for the past 20 years, as Rashid states in his book. Pakistan presently seeks an IMF bailout. IMF delegation is expected to visit Pakistan; however, IMF has proposed conditions for the loan that Pakistan’s Prime Minister Shehbaz Sharif defined as “beyond imagination.” Countries like the Kingdom of Saudi Arabia, UAE, and China are some key countries that continue to provide aid to Pakistan. How long will Pakistan continue to survive on bailout funds?
Furthermore, will Pakistan ever get out of its economic troubles and stabilize its economic condition so it can become a modern state? To answer this question, the term economic development has to be defined first. Francis Fukuyama writes in his Political Order and Political Decay: From the Industrial Revolution to the Globalization of Democracy that “Economic development can be defined simply as sustained increases in output per person over time. There are many arguments amongst the economists and others whether this is an adequate way of measuring human well-being, since per capita GDP looks only at the money and not health, opportunity, fairness, distribution, and many other aspects of human flourishing.” Further elaborating on this, Fukuyama states that “per capita GDP has the advantage of being straightforward and relatively well defined, and a lot of effort has been spent trying to measure it.”
The question of Pakistan’s economic trouble and finding a pathway to stabilizing as a nation further leads one to understand the dimension of development that Fukuyama points out in his book. According to Fukuyama, the three components of political development—the state, the rule of law, and accountability—as well as social mobilization are all distinct aspects of national development, but they also interact in significant ways. He asserts that “Changes in political institutions must be understood in the context of economic growth, social mobilization, and the power of ideas concerning justice and legitimacy.” In the case of Pakistan, its political development is stalled. This is supported by the fact that Pakistan’s regional politics is dominated by what Fukuyama calls a “quasi-feudal landed elite” that does not want to give up its privileges.
Pakistan has become a nation-state that has conditioned itself, including the public and the political elite, to remain a slave to corruption. Unchecked corruption and looting of government resources by the political elite are just the norms, which is ironic for a state that considers itself an Islamic Republic that is supposed to govern itself and the lives of people according to the principles of Islam. Negligence of Islamic principles that place justice at the core of governance and society, what does it say for the Islamic Republic of Pakistan? As Pakistanis, one must ponder this deeply. The shackles of corruption cannot be broken because the Pakistani public is conditioned to welcome corruption and behave in unethical manners, believing that corruption can only be answered with corrupt behaviors. After all, the government that is supposed to uphold law and order has adopted corruption as its governance methodology and feels no shame or remorse about it while the public, in general, remains an accomplice to such a system of governance.
Pakistan’s political elite requires a complete restructuring and cleansing of its political system to become a modern nation-state, and the public also requires a deep look within. The soul of the nation must be defined by its citizens. Pakistan as a nation must now make a choice to either completely change its ways of thinking and behaving. As a result, elect politicians who take initiatives and implement progressive initiatives for the well-being of its citizens and the nation or continue to choose a corrupt political elite that looted Pakistan for decades now.
The citizens of Pakistan need to focus on the ethics of hard work and take the country on the path of progress through a collective commitment to honesty, hard work, innovation, and economic betterment, which happens through initiatives in the education sector, private sector, and the non-profit sector, pulling all resources to build and improve. Additionally, this means that ending blind political allegiances to politicians and political parties that have bankrupted the country. The youth needs to get more involved in the political processes and root out corruption to lead the country on the path of progress. Pakistanis need to decide now, what kind of Pakistan they desire? This decision will truly determine now if Pakistan survives or collapses like Sri Lanka.