Political instability and economy

Nadeem Moulvi


The writer is a business analyst.

Pakistan is witnessing a prolonged period of political instability and the adverse consequences for the economy are quite visible. The present government has also failed economically and continues to lurch from one crisis to another.

The IMF, in a study titled ‘How does political instability affect economic growth?’, collected data from 169 countries. The IMF study has three conclusions. One, higher degrees of political instability are associated with lower growth rates of GDP per capita. Two, political instability adversely affects growth by lowering the rates of productivity growth. Three, political instability adversely affects growth by lowering the rates of human capital accumulation.  

Political instability in Pakistan has indebted the country to the tune of 107 percent of its GDP. It has thrown 40 percent of Pakistan’s population into poverty. Political instability has also forced 71 percent of Balochistan and 49 percent of Khyber Pakhtunkhwa to live in multidimensional poverty.

Last week, Pakistan Stock Exchange (PSX) remained under pressure amid political tensions. Investors continued to pull out on scares that a likely political scale-tipping was underway and economy was at stake.

Economic development cannot be separated from the broader political, socio-cultural and institutional environment in a country. Economic development requires a conducive ecosystem. No country in the world can economically develop under a volatile and hostile environment of political engineering.

In last four decades, other countries have overtaken Pakistan because of our internal political turmoil and crisis. Given the low growth trajectory, India and Bangladesh are definitely going to further pull away from Pakistan in terms of per-capita income. We must ask how and why they have been able to develop so rapidly and we couldn’t?

Pakistan’s current economic trajectory is simply unacceptable. At the current pace, we will be unable to offer decent employment opportunities to our two million young population entering the job market annually which will create numerous social, cultural, economic and security challenges for us.

We are caught in a vicious cycle. This uncertainty reduces business investment. In turn, lower levels of business investment result in poor economic performance. In turn, poor economic performance generates public unrest – and leads to government collapse.

We simply need to learn from the successful experiences of other countries. All political parties must agree on certain economic policies and reform agenda for the better future of Pakistanis. Bold and aggressive steps are a necessity, and the government has a duty to do everything in its power to catalyse growth and prevent economic catastrophe.