Economics over politics

It is quite interesting to see how losses in the economy are playing havoc with gains in politics. World politics is passing through a different and difficult phase of bickering owing to mainly economic downturns. In other words, the political economy is in trouble these days, facing a lot of criticism, as there seems to be no end to high or hyperinflation.

There is a clear demarcation of economics and economic faultlines, and economics is in fact overshadowing politics right from the US, Russia and China to Sri Lanka, Argentina and Pakistan.

The time is over when military might was the only factor to rule over the world. Now, it is economics that dominates over the rest. Political governments are facing a lot of difficulties to sustain and absorb economic shocks like the one the world faced during the Covid-19 pandemic. The situation has been exacerbated by the Ukraine war.

Political governments are facing severe criticism by people bearing the brunt of high inflation, as they are hardly making both ends meet. If we look at world economies, we will find Pakistan to be a particular case to study.

Pakistan is a country of experiences and excellence in almost all fields – covering the subjects of economics to politics. The last 75 years have seen all sorts of tenures. The only permanent factor has been the intervention of the country's powerful quarters, trying their best to make Pakistan a great rising nation. But the reality check is that this dream seems unachievable.

Pakistan is altogether a different case study. Investments and businesses demand a clear roadmap that is missing in Pakistan. The lack of consistency and coherence in government policies is stagnating the economy. Pakistan is in a serious debt trap, and there seems to be no way out. Politicians who are supposed to be leaders are fighting with each other over petty matters. All of this has brought the economy close to default. In Pakistan, politics has overturned economics.

The popularity and unpopularity of political governments depends on economic prosperity and devastation respectively. Businesses in Pakistan are currently facing a lot of hurdles, and trade and industry have drastically gone down. Political leaders are under severe criticism with a lot of pressure from people and businesses to revive the economy. They are facing the brunt of high inflation in the economy.

The previous government of Imran Khan – or for that matter the incumbent coalition government led by Prime Minister Shehbaz Sharif – got stumped due to economic mismanagement. The IMF is giving Pakistan a tough time before the restoration and revival of the $6.5 billion EFF programme for the same reasons.

Economic recovery is the most sought-after factor to save politics, as the present financial crisis is nerve-shattering for the government.

The cost of the present economic crisis is high and no political government in the world can afford and sustain such a situation. No economic strategy is working. Pakistan is on the verge of bankruptcy. It is unfortunate to see that businesses in Pakistan are closing down due to the financial crunch and crisis-like situation. This is, in fact, a self-made crisis. The political government of the PDM and its coalition partners is trying to avoid facing people in the upcoming elections; they are interested in postponing elections on any pretext whether legal, constitutional or otherwise.

Debt management has become a nightmare. The economy has now entered a new debt trap with the double issues of hyperinflation and high interest rates. Price hikes may cross the highest peaks if we don’t stop the policy rate, as the monetary policy committee of the State Bank of Pakistan raised the interest rate to 20 per cent adding woes to the crippling economy. Some experts believe that the lending rate will be raised to 23 to 24 per cent, making investment impossible in the country.

It is rather disturbing to see that the government thinks that raising the interest rate is the only solution, as inflation in Pakistan is basically cost-push inflation. Further, the exchange rate has hit its worst-ever rupee/dollar parity, standing at about Rs285/dollar, virtually making it impossible to start new businesses owing to the non-existent stable exchange rate of currency.

This economic crisis has its political cost and the present government will definitely pay the price once polls are held in Pakistan.

Politics and economics are two sides of the same coin so far as the people are concerned, as they suffer the most in this game.

Political systems are considered to be the main engine to carry forward economic systems all over the world. The woes and plight of ordinary people increased manifold owing to multiple reasons in the last two years. Unfortunately, there seems to be no end to it.

The IMF programme attaching ever new conditions on each round of review talks has worsened the situation. The programme instead of giving relief apparently seems to be adding burden to the suffering of the people. Now politics is at stake in the hands of economics in Pakistan. But the most crucial question to ask is: how to manage the current economic crisis and what is the way forward?

The way forward is very clear: seek help and support from the IMF immediately, as the government of Pakistan is already trying its best to restore the programme in the larger interest of the economy to help avoid sovereign default. The privatization of more than 200 state-owned PSEs is immediately required to shed the economic burden and unnecessary costs being borne by the government.

This move will further boost economic activity through investment by the private sector. A long-term plan of economic recovery must be outlined by first stabilizing the political system through general polls. CPEC and other strategically important investment programmes must be prioritized as part of our economic revival. There is a need to get rid of loans, especially foreign loans, through robust economic growth as part of the debt management strategy. There is a huge economic crisis in Pakistan, and only a stable political system can deliver in this situation.

The writer is a former additional secretary and can be reached at:

hassanbaig2009@gmail.com