Written by Vidushi Lakhera
Research Intern, Jindal Centre for the Global South,
O.P. Jindal Global University, India.
22jsia-vlakhera@jgu.edu.in
The South Asian region has been the least developed region, with widespread poverty and political instability, inadequate infrastructure, climate change and acute hunger. Even though the region has experienced initial economic success with rapid economic growth and industrialization, but the region is again at the behest of Unprecedented challenges, with Afghanistan economy in shambles due to the Taliban Rule. Nepal and Bangladesh are experiencing dwindling foreign reserve, and imbalance of Balance of Payment. Sri- Lanka is facing the worst economic crisis in its history and Pakistan too is in the league of becoming next Sri- Lanka with soaring inflation and Depleting foreign reserve. (BHOWMICK, 2022)
Impact Of Political Instability On Pakistan Economy
Pakistan home to around 24 million people is in the grip of a multifaceted crisis, possibly the worst since the country’s disintegration following the Bangladesh war in 1971. The country is facing widespread shortage of power and its foreign reserve has reached a record low of $ 4.5 billion and prices of the food have skyrocketed and country is on the verge of defaulting on its debts. (Shalini Chawla, 2023). However, many factors have contributed to Pakistan’s economic downfall. The foremost reason for the unprecedented economic crisis is the political leadership’s poor management of macroeconomic policy, wide spread corruption, terrorism and investing in unnecessary projects like CPEC by borrowing excessively from china and the nation’s political instability. Since independence—no prime minister has been able to complete out his or her full term—and the military’s excessive involvement in the affairs of the country has negatively impacted the development of the nation and every leader who comes in power knows that he or she can be overthrown so their sole focus has been on power struggle rather than economic development of the country. In order to gain political clout, the former Prime minister of Pakistan Imran Khan mismanaged the economy which was already in the brink of collapse by rolling out Rs 120 billion subsidy package to support 130 million by lowering the prices of flour ghee and pulses at 30 percent for 6 months and providing interest free loans to 4 million and providing fuel subsidy this step by the government created burden on the economy which was already facing large trade deficit. In Pakistan, political instability has increased economic slavery. Various Pakistani economic and political systems have created a downward spiral effect in the country. (Imran Khan announces Rs 120 billion subsidy package, calls it ‘biggest welfare programme in Pakistan’s history’, 2021) Pakistan relies heavily on imports to meet its food needs, and the Russia-Ukraine conflict has impacted its wheat imports from Russia, which account for 39% of total wheat imported. (Rehman, 2022) The devastating flood that struck Pakistan in August not only drove millions of people out of their homes but drowned its fragile economy just as it was recovering from pandemic – more than 80% of the nation’s crops was damaged creating a severe food shortage that forced the government to import vegetables and wheat from its neighboring nations. According to the UN, the floods caused an enormous $40 billion in economic damage. This in a nation that is struggling with high inflation, which was already at a 14-year high of almost 25% in July before the floods hit. (Naz, 2022)
Debt Status
Pakistan economy is on the verge of collapsing due to the economic mismanagement by the successive governments and accumulation of debts and in only 22 years and the Pakistan public gross debt has increased over 1500% and with succeeding administration since 2000, whether a military dictatorship, a civilian government, or a hybrid regime, has left office with the nation’s public debt nearly doubled. Pakistan’s gross public debt was Rupees 3.1 trillion in 2000; with the end of military rule in 2008, the debt had increased by 10% to Rupees 6.1 trillion. In the five years that the Pakistan People’s Party (PPP) was in power, the debt increased by 130% to Rupees 14.3 trillion in June 2013. By the time Nawaz Sharif’s term ended in May, it had increased by 76% to Rupees 25 trillion. After Imran Khan took office in 2018, the public debt increased by 77% to reach Rupees 60 trillion during the subsequent 43 months of his rule, totaling Rs 44.3 trillion. (Rana, 2023) The Pakistan debt is the byproduct of many factors including trade deficit (Expenditure higher than income), acquiring more and more loans at higher interest rate to payback previous loans depreciation of currency against foreign currency, inability to bring economic reforms and Pakistan most ambitious project- CPEC (China and Pakistan Economic Corridor) has exacerbated the debt crisis. China makes the largest chunk of Pakistan debt, as it owes 30% of its debt to Beijing. (Harsha, 2022) Moreover, Pakistan has already defaulted because it is unable to repay loans obtained China, Saudi Arabia, or the United Arab Emirates because they are renewed every year and Islamabad has recently obtained 23rd International Monetary Fund Program. This long-term practice of the successive governments of acquiring loans from IMF has impacted its public finance as the loan as adds to debt the burden as it has to be paid through revenue generated and which ultimately leads to reduction in public finance and this has impeded the development of the nation. (Rana, 2023)
Bangladesh Economy In Trouble
One of the most impoverished nations in the world in 197 Bangladesh has come long way and is regarded as one of the remarkable examples in south Asia for its rapid reduction of poverty and economic success. However, the liberalization of the early 1990s was followed in the 2000s by rapid economic growth and reduction in poverty. Bangladesh’s textile and ready-made clothing industries are what are primarily fueling its rapid economic growth. With many clothing brands like Zara and HM manufacturing their clothing in Bangladesh, this industry has not only created employment opportunities but also paved the way for industrialization that is export-focused. But the COVID-19 pandemic has wreaked havoc on the Bangladeshi economy as a result of the decline in remittances and the badly affected textile industry, which led to the cancellation of orders and loss of employment. Bangladesh is dealing with a number of issues at once, including shrinking international demand for its ready-made garment’s exports, decline in remittances, dwindling foreign exchange reserves to stabilize the volatility of the Bangladeshi taka and the demand-supply imbalances in the energy markets due to the Russian Ukraine war (BHOWMICK, 2023). The decline in remittances has impacted the balance of payments (BOP) and put pressure on its foreign reserve and as a result of these issues. There has been a massive dip in the foreign reserve from US$ 46.39 billion in 2021 to US$ 39.77 billion by July 2022. (BHOWMICK, 2022) Bangladesh has requested a $ 4.5 billion precautionary International Monetary Fund (IMF) loan in July 2022. A $1 billion loan from the South Asian Development Bank is another request Bangladesh is making in addition to this. (BHOWMICK, 2023).
Bangladesh is staring at economic crisis due to the global crisis one after the other but Pakistan is entangled in unprecedented economic and political crisis and the clouds of Tehrik -i-Taliban Pakistan is looming over the security establishment of Pakistan which is further detreating the stability of the country.
References
BHOWMICK, S. (2022, December 9 ). Retrieved from ORF : https://www.orfonline.org/expert-speak/bangladesh-economy-strong-points-and-red-flags/
BHOWMICK, S. (2022, December 28). Retrieved from https://www.orfonline.org/expert-speak/bangladesh-economy-volatile-taka-and-inflationary-pressures/
BHOWMICK, S. (2023, January 17 ). Retrieved from https://www.orfonline.org/research/a-troubling-economic-trajectory-in-bangladesh/#:~:text=Bangladesh’s%20economy%20was%20one%20of,impair%20the%20nation’s%20continued%20progress.
Harsha, P. N. (2022, september 3). Retrieved from https://www.siasat.com/pakistan-owes-30-of-its-foreign-debt-to-china-2404523/
Imran Khan announces Rs 120 billion subsidy package, calls it ‘biggest welfare programme in Pakistan’s history’. (2021, November 3).
Naz, F. (2022, october 28). Retrieved from AlJAZEERA : https://www.aljazeera.com/opinions/2022/10/28/floods-are-tipping-pakistan-into-a-food-crisis
Rana, S. (2023, January 21). A debt-trap spanning 75 years: Pakistan’s journey towards a sovereign default.
Rehman, A. (2022, December 11). Retrieved from https://www.nation.com.pk/11-Dec-2022/ukraine-war-and-pakistan
Shalini Chawla, R. (2023, January 28). Pakistan living on the edge . (M. Lynn, Interviewer)
BHOWMICK, S. (2022, December 9 ). Retrieved from ORF : https://www.orfonline.org/expert-speak/bangladesh-economy-strong-points-and-red-flags/
Harsha, P. N. (2022, september 3). Retrieved from https://www.siasat.com/pakistan-owes-30-of-its-foreign-debt-to-china-2404523/
Imran Khan announces Rs 120 billion subsidy package, calls it ‘biggest welfare programme in Pakistan’s history’. (2021, November 3).
Naz, F. (2022, october 28). Retrieved from AlJAZEERA : https://www.aljazeera.com/opinions/2022/10/28/floods-are-tipping-pakistan-into-a-food-crisis
Rana, S. (2023, January 21). A debt-trap spanning 75 years: Pakistan’s journey towards a sovereign default.
Rehman, A. (2022, December 11). Retrieved from https://www.nation.com.pk/11-Dec-2022/ukraine-war-and-pakistan
Shalini Chawla, R. (2023, January 28). Pakistan living on the edge . (M. Lynn, Interviewer)
The opinions expressed in this article are those of the author (s). They do not purport to reflect the opinions or views of the Jindal Centre for the Global South or its members.
Global South Studies Series 