The nascent democracy of Pakistan treads on thin ice — the political scenario remains bleak and political parties continue to try to reach a common ground both inside and outside the Parliament.
While political turbulence in the country has hogged all the limelight, it has distracted attention from real issues that directly affect the life of a common man. As politicians scurry to end the four-week old political crisis amicably through a dialogue, there has been little alarm over the country’s precarious economic performance. A failure to accelerate reforms and growth poses economic and other sociopolitical challenges to Pakistan.
Pakistan is facing some serious economic challenges in the form of double-digit inflation, low savings rate of 13.2 percent of the GDP, high government debt at 63.1 percent of GDP and 8 percent budget deficit. In recent years, the economy has experienced sluggish growth mainly due to a poor security situation, corruption, nepotism and a crippling energy crisis across the country.
Today, Pakistan’s unstable political situation poses a serious threat to the country’s economic future. The fragile democracy is not likely to make any significant social and political transformation in Pakistan. However, the political noise will certainly have a bearing on the pace of economic reforms, such as structural adjustments to lower fiscal deficits and privatization process, which were in progress. A recent round of talks between the IMF and the government for review of $6.6 billion Extended Fund Facility (EFF) has already remained inconclusive mainly due to the country’s prevailing political situation and a delay in the promised power tariff increase.
Uncertainty about the reforms package and overall macroeconomic indicators is a big worry for both domestic and foreign investors. Even if all quantitative calculations signal sizeable returns, rational investor are not likely to commit their resources till all political factors make sense. Politics rules over economics as investors display great sensitivity to changes in political sentiments that may lead to social turmoil. The current political crisis could potentially jeopardize the government’s plans to privatize the lucrative Oil and Gas Development Company Limited (OGDCL). As authorities focus on ending the political deadlock, the OGDCL’s listing on London Stock Exchange could face a delay as international investors may shun offerings from Pakistan due to its unpredictable political situation.
The Chinese premier also postponed his visit to Pakistan till the normalization of country’s internal situation. During this visit, China was expected to sign new agreements worth up to $32 billion in different sectors of the economy.
These accords were critical for Pakistan to overcome the energy crisis, promote infrastructure development and position itself as a favorable investment destination. The postponement of visit sends a strong signal to the world as China has historically been a strong ally of Pakistan. The message is loud and clear — Pakistan needs to sort out its political issues first, otherwise international investors will retreat from its markets. Given the country’s economic targets, the government cannot simply afford to turn away potential foreign investors.
It is in the best interest of Pakistan if democracy is given a chance and a process of dialogue, and reconciliation, is encouraged for greater political stability in Pakistan. Any deeper political crisis will once again prove that Pakistan is its own biggest enemy.
The Big Liar
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