Home Editorial Editorial: Default and Declining Politics

Editorial: Default and Declining Politics

Without political stability, Pakistan has little chance of achieving economic prosperity

by Editorial

File photo. Rizwan Tabassum—AFP

Economic pundits are increasingly sounding the alarm over Pakistan defaulting, noting that from 2016-2022, the country’s cumulative current account deficit reached $74.5 billion as foreign exchange reserves declined, requiring financing of $70.9 billion against borrowings of $65 billion. Pakistan’s political chaos, coupled with security threats, has made it very difficult to attract foreign investment, requiring loans of $11 billion annually to finance the external deficit. While remittances from overseas Pakistanis have lent some help, they have yet to hit values that can make up for the dollars pouring out of the country.

Since last year, Pakistan appears to have recognized the crisis and has been taking “corrective” measures to revive an International Monetary Fund (IMF) program seen as key to averting default. Unfortunately, the IMF’s “solution” has always been to impose limits on actions taken by the state to get out of trouble. Chief among these is raising the benchmark interest rate, which is aimed at reducing inflation, but also increases the value of loans to be repaid. Experts warn that a sustained double-digit interest rate undermines the health of the banking system, leading to loan defaults, and starving the private sector of credit.

At the same time, Pakistan’s political chaos does little to reassure foreign investors and donors. PTI chief Imran Khan’s policy of isolationism attracts the common man, but does not inspire much confidence elsewhere. There are concerns that the societal polarization triggered by Khan could spiral out of control, making it difficult to achieve any stability. The government’s attempts to counter his narrative, mostly through the announcement of various subsidies, risk endangering the economy, as the IMF questions their viability while continuing to dither on reviving a stalled bailout for several months now.

The government’s latest attempt to counter Khan appears to be through a “get tough” policy, but few expect this to bear fruit. In a recent op-ed, well-regard journalist Zahid Hussain summed up the fears of the general populace: “Any repressive measure is likely to only intensify the confrontation and deepen polarization. The former prime minister (Imran Khan) is already facing dozens of cases on charges, ranging from terrorism to corruption to receiving illegal funding from foreign donors, in various parts of the country. Not only would such intimidatory actions be counterproductive, they will also weaken the democratic political process in the country. Interestingly, the crackdown seems to have increased popular support for the former prime minister as demonstrated in recent opinion polls.”

Related Articles

Leave a Comment