Dear Neighbor in distress?
Flags were culled from the same piece of cloth; they were born from the womb of one mother, Hindustan. Ever since the curse of partition played out, India and Pakistan were often called siblings with polarly apart traits bound in a bitter-sweet (more bitter than sweet) relationship. Since their inception about 75 years ago, both countries have been able to determine their growth and development trajectories that are significantly different from one another. Big brother India is currently the most populous country and the 5th largest economy in the world, with ever-increasing friendly and diplomatic international ties with countries all over the globe. Painted in a grim picture is younger brother Pakistan, laced with economic, political, and cultural struggles and crises dating back a decade or more. On the international front, Pakistan has been the historical ally of the USA and China, who, more often than not, consider it a 'sacrificial pawn' at the very least.
As we speak now, Pakistan is again in the tight clutches of severe economic turmoil. Grappling levels of inflation and exceedingly low foreign exchange reserves, among other unfavorable parameters, have culminated in Pakistan being on the brink of bankruptcy and economic collapse.
What has gone haywire?
Before we analyze the situation, a background understanding of the various factors that caused such a scenario is indeed forthcoming. This dynamic turn of events faced by the Pakistani economy isn't nascent but has been cradling at its core for over a decade. Inflation which stands at about 27% today has been an omnipresent phenomenon in the economy. With exorbitant taxes and poorly laid out taxation policies coupled with a devalued currency and high energy costs, there is hardly any hope for inflation to be within bounds. A weak currency has resulted in imports burning a hole in its pocket, depleting its forex reserves which now stand at 3 billion dollars, meekly enough to support imports worth only three weeks. It is in crumbling amounts of debt from other countries, and its incapability to repay has largely hampered its credibility in the foreign market. Rising terrorist activities and increasing association with terror regimes have further dismantled its image on the world forum. The danger of looming unemployment is seen becoming an absolute monster due to discrepancies in the manufacturing sector budding from a lack of imports. Many industries have already ceased all functioning, thus fuelling the engine for increasing unemployment. To make situations worse, Pakistan's security is dwindling at the Afghanistan borders. Political instability and the system's incapacity to gain the trust of the public, uphold an authoritative institution, and sustain growth-driven initiatives have gnawed at the country's glory. The stakeholders in the government, by virtue of their sheer mismanagement, haven't been able to ensure a trickle-down phenomenon in most welfare spheres. The 2022 floods cost the nation about $3 billion in reparations, destroyed vital infrastructure, uprooted many people, and hampered domestic production capacity. Although supply chains within the country are fairly decent, the distribution systems are seriously troubled and need a thorough revamp. There has been a spike in the number of beggars; the poor are out on the streets without food and a roof to live under.
The way forward or a crossroad?
Pakistan now finds itself at a challenging crossroads. Such an expected destiny has led to the State in waiting lines for an IMF bailout package. It looks like the only last resort for Pakistan to dodge the bullet of economic collapse. Basic amenities such as food grains have now become 56 percent more expensive. Although the IMF's conditions for releasing a package such as this, the Pakistani State shall have to place its trust in the old adage, which says "beggars cannot be choosers." In lieu of counters laid by IMF, Pakistan has increased petrol prices by strikingly, which comes as a hard blow after shortages exacerbated by the Russia-Ukraine wars. It further had to eliminate artificial caps on its currency. Pakistan should swallow the bitter pill or it shall invite the perils of 60% inflation. There is a need for retrospection by policymakers to reduce dependence on imports and increase self-reliance by enhancing domestic capacity. Instead of downsizing government expenditure, the focus should be on revenue generation. Budget expansion at this point is a double-edged sword since it provokes the risk of further inflation. Along with economic reforms, Islamabad must revisit its foreign policy too and nurture amicable relations with more countries to be equipped to muster help when needed the most. The impetus should be on diverting productive resources for development purposes rather than focusing on funding violent upsurges within the nation.
Sources
The economic crisis in Pakistan_TOI
https://countercurrents.org/2023/02/pakistan-is-facing-major-economic-crisis/
Written by Rachita Priyadarshini | Proofread by Yasmin Uzykanova
