Political unrest pushes Pakistan to the edge of economic precipice

So has the economic fallout of the Ukraine war in the shape of soaring oil and food prices and the prospect of major LNG shortages in the coming winter months…reports Asian Lite News

Never before has Pakistan needed to navigate serious challenges in such a divided and fractured state, Maleeha Lodhi, Islamabad’s former Ambassador to US and UN, has said.

Most significantly, intensifying political polarisation will serve as an impediment to the country’s ability to deal with a bigger challenge – a deeply troubled economy. The uncertainty generated by political unrest and turmoil is pushing the country to the edge of the economic precipice, Lodhi wrote in an article in Dawn.

Far from being out of the woods the economy faces solvency challenges ahead.

People wave flags and celebrate at a national day rally during the country’s 69th Independence Day in Peshawar, Pakistan, August 14, 2015. REUTERS/Khuram Parvez

Foreign exchange reserves are at a three-year low, enough to cover just six weeks of imports. Two rating agencies, Moody’s and Fitch, have downgraded Pakistan’s credit rating. The economic damage from floods, estimated at over $30 billion, has exacerbated the country’s financial difficulties, Lodhi said.

So has the economic fallout of the Ukraine war in the shape of soaring oil and food prices and the prospect of major LNG shortages in the coming winter months.

The market has been nervous over the billion-dollar sovereign bond payment due in December. The bond has been trading at a huge discount. The government insists it has lined up adequate finances to pay this and meet the heavy external obligations ahead.

While Pakistan has faced repeated balance-of-payments and liquidity crises in the past, today it has to deal with this in an adverse external environment in which the aftershocks of the Covid pandemic and fallout of the Ukraine conflict have left supply chains and global commodity and financial markets in an unsettled state, she asserted.

The impact of unpredictability on the country’s perilous external position when its foreign exchange reserve cushion is eroding cannot be underestimated. Uncertainty is putting pressure on the exchange rate with a weak rupee fuelling inflation, which continues to be stubbornly high.

Moreover, prospects of an economic recovery depend critically on the level of private investment, which is the most important indicator of the country’s growth path and sustainable financial stability. But investors remain hesitant due to heightened political uncertainty. Anticipation of more political unrest is dampening investor sentiment and reinforcing their instinct to sit it out. It is also making markets edgy, Lodhi added.

If current political troubles continue with no end in sight, it will exact an even heavier toll on a struggling economy, increase people’s economic hardship and leave the country in a more ungovernable state – regardless of cash help from friendly nations. Living on loans from outside will not fix Pakistan’s internal problems, she said.

Talat Masood wrote in Express Tribune that the present state of politics is affecting the country’s economy and the international image and standing.

Due to the overall security situation, China the close strategic ally had expressed its serious concern about the safety and security of their citizens. Most embassies’ advisories discourage citizens to visit Pakistan and those who have to are advised to restrict their exposure to the minimum, Masood asserted.

“It is not surprising that we hardly see citizens from foreign countries in public and those who come on official visits are fully escorted. This is affecting our economy as investment has declined to its lowest level. So has tourism and travel. Activity in CPEC has lost its momentum partly due to weak security,” he said.

Lieutenant General Masood is a retired officer of the Pakistan Army.

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