Pakistan’s politics continues to dictate its economic crisis

As mainstream media headlines show, Pakistan, to avoid a sovereign default, is inching closer to a bailout deal with the International Monetary Fund. It has been more than a year since April 2022, when the present coalition government, headed by the Pakistan Muslim League (Nawaz), came to power. Its economic performance has not been better than that of the previous government, under Imran Khan’s Pakistan Tehreek-e-Insaf, and Pakistan continues to see an extremely high rate of inflation. Between March 2022 and March 2023, Pakistanis faced more than 35 percent inflation – the country’s highest rate in 50 years. Still, for Pakistan, such an economic situation, with a looming threat of sovereign default, is not entirely new. In 1998, the country came dangerously close to default: the government announced a “technical default” with some creditors by delaying repayments. The country’s foreign exchange reserves had fallen to as low as USD 400 million.

While Pakistan somehow managed to avoid a sovereign default on that occasion without major structural reforms, a key factor that allowed this was the fact that the crisis at that time was, by and large, purely economic. Today, as opposed to 1998, Pakistan’s crisis is multidimensional, with political, institutional, economic and security issues all coming together. Finding a way out of the bog this time is a task of a completely different magnitude.

The arrest of Imran Khan on 9 May 2023 on charges of corruption, and the resulting clashes between Khan’s supporters and the police and paramilitary forces, reflect the deep-rooted political polarisation within the country. The intervention of the Supreme Court of Pakistan in granting bail to Khan highlights the complex dynamics at play in Pakistan’s institutional and party politics – the courts, it seems, are not reading from the same script as the powers that be.

To a very large extent, the reason the present government has not been able to seal the IMF’s bailout programme, which it has been pursuing for more than a year, is purely political.

A political tightrope

Ever since Imran Khan’s ouster as prime minister via a vote of no confidence in April last year, he has aggressively mobilised against the present government, complicating its policy choices. The government is reluctant to implement the IMF-suggested reforms – especially the demand to increase fuel and electricity prices, and to end numerous subsidies – out of the fear of the electoral backlash from a populace already struggling to meet the costs of living.

The arrest of Imran Khan on 9 May 2023 on charges of corruption, and the resulting clashes between Khan’s supporters and the police and paramilitary forces, reflect the deep-rooted political polarisation within the country.

More recently, Khan has been pushing for elections for the Punjab and Khyber Pakhtunkhwa assemblies, earlier controlled by his party, which he himself dissolved in January. The Pakistan Muslim League-Nawaz (PML-N) and its coalition partners have been trying to postpone these elections till October when general elections are due anyway. But the Supreme Court recently ruled, albeit controversially, in favour of holding the provincial elections in May, to meet the constitutional requirement for holding elections within 90 days of an assembly’s dissolution. Where the PML-N and its allies contend that the government is short of money to fund elections, the real reason for the delay is very likely the fear of electoral defeat. This fear isn’t unfounded.

In July 2022, just months after his ouster, Imran Khan’s PTI defeated the PML-N in by-polls in Punjab. This defeat for the PML-N, which traditionally has a very strong base in Punjab, sent shockwaves through the party. It was forced to scale down its expectations vis-à-vis Imran Khan’s political weakness post-April 2022 and become a lot more conservative in its outlook on economic reforms. Subsequent delays in reaching a deal with the IMF have contributed to pushing Pakistan to the verge of default. Again, the government’s motivation has been to not make any unpopular economic reforms and so concede more political ground to Khan. These purely political considerations are shaping the coalition government’s policy choices.

At the same time, the ongoing economic situation is also informing purely political decisions, not least when it comes to the issue of elections in Punjab and Khyber Pakhtunkhwa provinces. Before January 2023, both provincial assemblies were controlled by Khan’s PTI. Khan dissolved the assemblies in hope of putting more political pressure on the ruling government and forcing general elections ahead of time, banking on his increasing popularity in the wake of the government’s failure to manage the economic crisis. Of course, things haven’t worked out to plan, as the political situation has led the government to refuse to hold elections.

The Pakistani military has played a central role in creating the country’s present conditions – a role that many believe began when it allegedly manipulated the 2018 elections to bring Khan to power.

The government’s refusal to abide by the Supreme Court’s judgement has created another crisis, pitting the parliament against the judiciary – or, at the least, against some judges, including the chief justice, who was on the bench that granted Khan bail. The parliament is now busy in the process of passing legislation to curb the chief justice’s suo moto powers: powers to take notice of any matter and rule on it, as it did in the case of fresh elections in Punjab and Khyber Pakhtunkhwa. The ongoing political crisis is also an institutional crisis, further hampering Pakistan’s chances of recovery from the overall crisis.

The military’s changing role

When it comes to institutions in Pakistan, any analysis that does not take the military into account is incomplete. The Pakistani military has played a central role in creating the country’s present conditions – a role that many believe began when it allegedly manipulated the 2018 elections to bring Khan to power. Khan later accused Qamar Javed Bajwa, who stepped down as army chief last November, of betraying his government by withdrawing the military’s support for the Khan regime. Instead, the military extended the same to the coalition partners of the present government, helping them oust Khan and capture power. But the resulting coalition, although it satisfied the military’s financial desires by increasing the defence budget by 11 percent, lacked a popular mandate, especially when it came to major economic reforms or making a deal with the IMF.

The parliament’s own standing has come under question after Khan’s party decided to resign from all its seats in the National Assembly. This has left the more powerful house of parliament with no opposition, contributing to the stalemate now gripping Pakistan’s economy and politics.

In July 2022, just months after his ouster, Imran Khan’s PTI defeated the PML-N in by-polls in Punjab. This defeat for the PML-N, which traditionally has a very strong base in Punjab, sent shockwaves through the party.

This political, economic and institutional crisis is now compounded by an additional threat: the resurgence of the Tehreek-i-Taliban Pakistan in Khyber Pakhtunkhwa and Balochistan. This is in addition to the separatist insurgency in Balochistan since 2006 when military forces killed Akbar Bugti, a Baloch nationalist and the leader of the Bugti tribe.

In April, the government announced the launch of a new military operation to “rid the country of the menace of terrorism”. This can be read as a tactical move for the military, trying to re-consolidate its position in the wake of increasing criticism of its direct and indirect interference in politics. As one PTI parliamentarian told me, requesting anonymity, “While the military will kill some terrorists, this operation is also an exercise in image-building.”

Searching for common ground

There is the perennial question: how might Pakistan come out of this multidimensional crisis? There is obviously no easy answer. With the extent of polarisation evident in most state institutions – the executive and legislature, the judiciary and the military – the only way out is through a broad political consensus on minimum common ground. Also, any government that is serious about economic reforms must have a popular mandate to push them through. The present government lacks that mandate. Elections, leading to a government with a mandate and not fearful of immediate electoral backlash, seem a requisite next step.

This political, economic and institutional crisis is now compounded by an additional threat: the resurgence of the Tehreek-i-Taliban Pakistan in Khyber Pakhtunkhwa and Balochistan.

The next question is: how can a broad consensus take shape? In March, over a hundred civil-society organisations came together to demand that the political class bring the level of confrontation down and resolve differences through dialogue. A statement issued by members of civil society, in addition to offering their services to mediate between the government and the opposition, advised political parties to reach a national consensus either in the parliament or by holding an all-parties conference. The statement added that consensus was indispensable in mitigating the ongoing economic crisis.

These suggestions are important, but no political group in Pakistan is likely to heed them unless enough pressure comes from below – that is, from the people themselves. Only sustained political pressure on both the PTI and the coalition government, as well as its de facto allies, can possibly change the stagnant status quo. The ongoing economic crisis might create a situation where people are forced to take to the streets. And maybe politics, which has led Pakistan into this mess, will then show it the way out.

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