The solution to an ever-worsening economic mess is becoming more and more crucial to the tenuous stability of Pakistan. One of the most egregious spikes in inflationary pressure in history is being experienced by the country. Only war-torn Afghanistan’s economic situation is comparable to the current state of affairs, where Gross Domestic Product (GDP), per capita income, and GDP growth rates are at historic lows in comparison to their regional counterparts. However, for the second half of August, the interim government has unrelentingly imposed record-high fuel prices, making the situation even worse for a populace already suffering from rife inflation.
The caretaker government, led by Prime Minister Anwaar-ul-Haq Kakkar, was constrained by the International Monetary Fund’s strict conditions attached to the recently sanctioned $3 billion loan and had no choice but to pass along the rising global oil prices to struggling Pakistani consumers to meet the lender’s short-term fiscal goals. The August inflation index is ominously overshadowed by the effects of these price increases, both immediate and long-term. The central bank might be forced to raise its crucial policy rate in the following months if inflation turns out to be higher than expected.
Pakistan teeters precariously on the edge of a debt quagmire where the toll exacted manifests as spiralling inflation
As Pakistan finds itself ensnared in the vice grip of an International Monetary Fund (IMF) regime, it is an unspoken axiom of the business world that is strictly upheld. Pakistan, like many of its developing counterparts, teeters precariously on the edge of a debt quagmire, where the toll exacted manifests as spiralling inflation, a swift depreciation of the national currency, a shrinking production landscape, and the gradual erosion of social welfare disbursements, all at the dictate of international financial institutions. Whereas, according to the United Nations report, Pakistan’s rapidly growing population will number 330 million people by 2050. While it might be tempting to believe that Pakistan’s troubles would stay within its borders, history warns against this. Currently, Pakistan is dealing with unemployment and inflation rates that are noticeably higher than those of many of its neighbours. A troubling picture of Pakistan’s development is painted by the Human Development Index (HDI), which places the country in the dismal 161st place out of 185 countries in 2022. The index measures a country’s progress across dimensions of health, education, and living standards. Pakistan essentially struggles with some of the worst human development in the world, ranking 25th overall.
However, this bleak scenario has a complex history that includes poor economic governance, widespread corruption, and disproportionate funding for the defence industry, which feeds fiscal imbalances. Fostering investments in the education and professional expertise of the young cohort emerges as an imperative linchpin for generating prospects of a more sustainable economic trajectory in a demographic where half the population is still under the age of 22. Likewise, the prolonged political and economic unrest in Pakistan foreshadows a looming threat for the Indo-Pacific region. Particularly in its interactions with India and its function as China’s regional proxy, the nation’s governance fragility and impending fiscal insolvency portend ominous implications.
Undoubtedly, Pakistan may find itself entangled in a situation worse than Sri Lanka’s recent economic and political cataclysm, which was calmed by India’s quick emergency aid, giving Sri Lanka the flexibility to renegotiate its financial commitments with international creditors. This economic tidal wave crescendo is expected to reach its peak in the coming weeks. However a collapse in Pakistan would have far-reaching effects throughout the region.
The military brass may be tempted to play the India card, as has happened in the annals of history if there is the possibility of widespread civil unrest or schisms within the military echelons. It would become a dangerous gambit to fabricate a crisis in Kashmir or plan an incursion by extremists across the border, certain that India would be forced to act. Nobody’s strategic interests are served by an impoverished and fragile Pakistan.
The writer is a freelance columnist.