The question is whether Pakistan is at default risk and if so, what are the reasons and what are the losses that Pakistan will face?
There is no doubt that in the current situation, the sword of default is hanging on Pakistan until the economy of Pakistan stands on its feet again. This threat cannot be removed from the country. So, Pakistan is at default till then. There are many reasons for the deterioration of Pakistan's economy, which I will discuss here, but the first and most common reason is the war between Russia and Ukraine. According to many critics, the main reason for the war between both countries is the United States of America whose step of joining Ukraine in NATO didn’t give an eye to Russia. The aim behind the war was not to occupy Ukraine while some critics believe that this war was done by Russia to occupy Ukraine. Well, whatever the reasons behind it, actually the problem is the economic crisis that the whole world is seeing and suffering due to the war and its effects will last for many years. Pakistan is also counted among those countries because many of those countries brought oil and petrol from Russia and many purchased wheat from Ukraine but due to this War, the Global food chain has become a disaster.
The second major cause of the economic crisis is the increase in daily use items prices. Observers believe that due to the Coronavirus, the prices of fuel in the world market decreased but now as the economy of the world recovers the prices of oil are also increasing and in my point of view I feel the same way. According to the observers, the oil-producing countries are trying to cover their losses in this way. Another reason is the depreciation of the Pakistani rupee which is very obvious. When something is bought in dollars and converted into Rupees, it becomes expensive.
The third important reason is the loans that Pakistan has taken from the IMF. Due to the growing crisis, the only solution to save the country from the risk of default is for the current government to take a loan from the IMF, but unfortunately, the country hasn't recovered from the crisis. Instead of getting out of this miserable condition, it got worse. One of the main reasons for this situation is that along with the loans, the country also has to pay interest on them. There are also conditions that any country imposes on the loan; for example, according to the observers the IMF along with giving loans to Pakistan also made a condition that nothing will be sold to the people of Pakistan at a discount. That is why, Pakistan has to sell things on that price at which he will buy them, but the disadvantage of this is that the people of Pakistan are suffering. One of the ways out of the economic depression was the reduction of governmental incentives and the use of these official goods only for official purposes. If only the incentives had been limited, the economic crisis would not have been so severe and worse.
Another major cause of economic depression is political instability. Political stability has a special relationship with economic stability. Political stability can be established through economic stability and in the same way economic stability can be established in the form of political stability, both are intertwined. Politically stable countries, their economy is not strong but also growing day by day, on the contrary, the countries which are under the influence of political instability, their economy have suffered a crisis and all these countries have gone bankrupt. History is a witness that the Nations that solve problems together unite on a forum and stand together are politically and economically stable. One of the reasons for Pakistan's misery is that we are neither politically stable nor organized. The main cause of economic decline in Pakistan is political bitterness. It has often been seen that whenever a politician or Dictator comes to power, they give importance to personal interest by putting the national interest behind them. Akbar Zaidi has discussed this issue in great detail in the book Problems of Pakistan Economy. He mentioned the three periods of Pakistan's economy. The first is the era of exploration from 1947 to 1979, after independence, there were no economic resources on the land of Pakistan. In the beginning, Pakistan was a weak state but the absence of a constitution has made it more difficult because neither the constitution was established nor an economic policy was introduced for the country. Then, from 1979 to 2000, the period of a twisted economy begins. Pakistan was receiving aid as a result of the Afghan war. That is why its economy was based on aid. During the era of Benazir Bhutto, the country was suffering from an economic crisis, and all the ministers who came after Benazir had to go to the IMF to deal with the situation. Apart from this, the main causes of the economic crisis are the 9/11 incident, the Kargil war, and the 1998 nuclear weapons experiment, which broke the back of the country's economy. The country’s economy suffered a lot due to the new models introduced one after the other in every year of politics. To deal with this situation, it is necessary to implement structural reforms, Human Resource Management, and uniform tax policy, eliminate microeconomic bias, and increase competition.
Since April 9, when PTI chairman Imran Khan was ousted as prime minister through a vote of no-confidence motion, passed in the national assembly by the joint opposition following the orders of the Supreme Court of Pakistan, the country has been facing political instability with the rapidly worsening economic crisis.
Political instability hurt the economy badly. Growth has slowed to a crawl, while a severe shortfall of dollars is hampering imports. Shortages of food items are contributing to skyrocketing prices. Inflation reached an annual rate of 36.4% in April, with the cost of food rising nearly 47% in urban areas and more than 52% in rural areas.
By taking the loan from the IMF, Pakistan has still a chance to avoid default. Yet the threat could help the country for some time.
The Pakistani political system has always protected the interests of elites. Although the political leadership has been the representative authority, they failed to raise hope for a democratic state that would provide social and economic justice to all Pakistani citizens. The Pakistani politicians failed to create harmony on the national level, the role of Islam, provincial representation, and the division of powers between the center and the provinces, delayed the constitution, and postponed general elections. Pakistani political structure is moving away from the politics of Clientelism towards the politics of fundamentalism and fundamentalism means instability. Here inciting the youth and people against the Institutions of the state, the institutional head, and the Centre of the power of the country can have disastrous effects.
When we look back and open the archives of history, the transition from democracy to dictatorship in Germany took place in the context of political instability and economic depression, where people saw Adolf Hitler, the charismatic figure of their messiah and savior. Here, we are reminded of another important factor in state affairs namely the mentality of the leadership. The mental change of the leaders is the main driving force of the party which determines the course of the state. According to Robert R. Barr, some leaders took advantage of political instability through anti-establishment rhetoric Bhutto’s inclination towards class politics along with his open opposition to Ayyub Khan soon made him immensely popular with the masses. With an absolutist mentality, he also desired absolute power; an absolutist mentality is a problem.
History has witnessed that totalitarian power not only leads to corruption but also destruction, Adolf Hitler changed Germany from a democratic system to a dictatorship and then plunged Germany into a bloody war with disastrous results for absolute power disintegrating Pakistan. Now PTI’s turn to fundamentalist politics is based on confrontation with state Institutions including defamation campaigns against high officials and heads of Institutions. Many factors contribute to political instability in Pakistan, including weak democratic institutions: despite being a democratic country institutes are weak, Corruption: corruption is a serious problem that undermines the rule of law, the public trust in government, and the stability of the political system. Tension between military and civilian government, Ethnic and religious tensions, and economic instability.
Another factor is natural disasters. Pakistan is a developing country whose resources are not as much as their expenses. The natural calamities in Pakistan have caused a lot of damage to the economy of Pakistan. Flood damaged crops and many areas every year making life miserable for the common man. This not only affects the common man but also damages the country's economy. Crops that are affected by flood disrupt the food cycle. The exports that Pakistan makes to other countries and also exchange from them strengthens the economy of Pakistan, but due to the damage caused by the natural disasters, the Pakistani economy is destroyed. Even during the covid-19, Pakistan faced this problem with great courage, but due to lack of resources, it couldn't stand on its feet again today. In conclusion, the main way to deal with economic depression and unrest is to play our part in it by putting national interests before personal interests for the wellbeing of the country. To furthermore improve the countries situation, take such decisions that lead to the development of the country, get together on the forum and solve all these problems yourself. Be each other arm in case of calamities so that country can stand on its feet again.
PAKISTAN ZINDABAD