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.