Economic Impact of the Political Situation

Spearhead Analysis – 09.09.2014

Imran Khan Azaadi MarchAn objective look at the unfortunate ongoing political impasse from the economic point of view raises serious concerns. Several uncertainties have cropped up as a result of this political instability; it is by no means certain that the $ 6.8 billion IMF program will remain on track as the review which was due has been delayed and the expected $550mn tranche may not come through in time, the much awaited and hyped visit of the Chinese President has been postponed due to the political situation and this was linked to massive infrastructure projects that were to be financed by the Chinese, several economy related proposals that were to go through the Parliament are on hold and big ticket items like recovering revenue losses and pushing the privatization and development projects are facing difficulties. Add to this the real time losses which may be over the Trillion Rupee mark if facets like debt accumulation, rupee fall, stock market fall and depletion of foreign exchange reserves are factored in. The overall impact has been enormously negative for the country.

The roots of the present political turmoil can be traced back to the fact that Pakistan’s governance system was not made functional, restructuring and accountability of state institutions was not made effective and there has been progressive erosion of state authority in all spheres. This coupled with a close knit style of decision making and governance, a failure to address the grievances being voiced and uncertainty about civil-military relations has created a climate of distrust and desperation. There is very little doubt in any one’s mind that governance, judicial and electoral reforms are urgently needed to restore confidence in state institutions. No surprise then that there is enormous loss of investor confidence at a time when the opposite was required.

The almost month long protest right in front of the Parliament has virtually shut off government routine functioning because of the proximity of government offices to the protest site. Even if the political situation is somehow resolved through the ongoing negotiations between the two sides much sustained hard work would have to go in to recover Pakistan’s tarnished image abroad and to bring the economy back on track to inspire confidence all around. A major spin off of this crisis could be a drastic change in governance and decision making style, institutionalized decision making and credible teams working within the framework of functional institutions.

According to statements from government ministers the visit of the Chinese President was to formally ink $32bn investment agreements that included 14 power projects of 10,400MW and massive infrastructure projects — Gwadar Port and Expressway, Karachi –Lahore Motorway and work on the Karakoram Highway Phase II up gradation project. There were also projects to rehabilitate the failing railway system. Full details of all these projects have been given out in detail by government functionaries now but it would have been better if all these details had been shared with the people and announced in Parliament to gain public opinion support. Even now it is not too late because great damage is being done by ascribing various motives to the agreements with the Chinese. This entire process needs to be raised to a higher level of discourse because of the special China-Pakistan relationship.

It is also very important at this stage to ensure that civil-military relations are on track and that all baseless speculations about the military’s intentions are quashed. The present military has clearly stated and demonstrated its support for democracy therefore continued raking up of past events to ascribe motives behind the present political situation does not help in any way. The military like other state institutions has stakes in political stability and economic viability and an understanding of the present day and evolving regional and international environment — and like the rest of the country it wants a political solution to a political problem. Pakistan should not forget that it is a nuclear armed country and cannot afford to be politically unstable and in economic decline. Pakistan needs to be cohesive to fight the war that it has undertaken to secure its future. The political institution has to set the tone and play the major role to end the political crisis and recover from the blow back.

(Spearhead Analyses are collaborative efforts and not attributable to a single individual)