Op-ed

Political instability and economic growth

 

Azhar Saeed Hashmi

Political stability is the key element for economic development. Economic growth and sustainable market is not possible without political stability and creating conducive environment for investment. From the first day, Pakistan is suffering from political unpredictability that’s why investors always remained reluctant to invest in Pakistan. Karachi is the economic hub of the county. Pakistan produces almost 70% its revenue from Karachi but during the last decade majority of the investors have shifted their businesses in United Arab Emirates due to violence and political instability.

Pakistan is among those few countries where political instability had badly damaged the prospects of growth despite the fact that the country is rich in natural resources. It has been an impediment to development in every sphere of life. However, when this menace takes a nation in its claws, economic development suffers the most.

A retrospective look at Pakistan’s history reveals that since independence, the country couldn’t establish a stable democratic government, and it still remains afflicted with the ills of feudalism, political wrangling and bad blood among the political activists. This has negated every chance of bringing political stability in Pakistan.

Pakistan’s economy has faced massive loss worth of Rs 800 billion in last few days due to the political uncertainty created by the prolong Panama Scam hearings then verdict and now accountability courts hearings and arrests warrants specially the Finance Minister Ishaq Dar indictment recently by the court created very bad impact on Pakistan economy and market.

.”The current corruption cases have paralyzed Pakistan’s economy and the direct losses to the economy have reached up to Rs 800 billion while the indirect losses, according to estimates have amounted to several hundred billions. It is worth mentioning here that Pakistani rupee is under severe pressure in last few days due to the political uncertainty in the federal capital of the country.

Recently, the Planning Commission of Pakistan has launched Vision 2025, under the visionary guidance of Prime Minister of Pakistan. It serves as a detailed road map for the economic revival to address future challenges. It is pertinent to mention here that social stability and development issues are directly linked to the economic sustainability in the country. For smooth journey towards development, it is unavoidable to set aside the democratic process in the country. Need of the hour is to follow an approach which could address the national economic challenges with collective wisdom.

Economic growth and political stability are deeply interconnected. On the one hand, the uncertainty associated with an unstable political environment may reduce investment and the pace of economic development. On the other hand, poor economic performance may lead to government collapse and political unrest. However, political stability can be achieved through oppression or through having a political party in place that does not have to compete to be re-elected. In these cases, political stability is a double-edged sword. While the peaceful environment that political stability may offer is a desideratum, it could easily become a breeding ground for cronyism with impunity. Such is the dilemma that many countries with a fragile political order have to face.

According to World Bank Pakistan remains one of the lowest performers in the South Asia Region on human development indicators, especially in education and stunting. The Net Enrollment Rates in education have been increasing in Pakistan but still lag behind other South Asia countries. Infant and under five mortality rates represent a similar story. Gender disparities persist in education, health and all economic sectors. Pakistan has one of the lowest female labor force participation rates in the region. Nutrition also remains a significant cross-cutting challenge, as 44% of children under five are stunted. Increased allocation will only be possible after increasing government revenues. The tax-to-GDP ratio, at 12.4 percent, is one of the lowest in the world and it is still half of what it could be for Pakistan. Continued reforms to broaden the tax base and increase revenues will therefore need to remain a priority. Service delivery is the responsibility of subnational governments, whose capacity varies, but the federal Government needs to play an assertive stewardship role as increased financing has to be accompanied by meaningful improvements in quality of services. A strategy to greatly improve development outcomes would therefore need to combine efforts to increase the level of public spending as well as improving its quality, with a focus on provincial level capacity.

No political party alone can undertake these reforms. It requires commitment from all the major political parties under the Charter of Economy. They must remember that economic stability and political stability are deeply interconnected. No amount of foreign assistance will propel growth unless conditions like a stable and honest government, market-oriented policies, and willingness to undertake reforms are in place. Aid that goes into poor policy environment does not work. Instead, it contributes to debt and restrains future economic growth.