The resurgence of the Corona­virus pandemic and protests launched by the main opposition political parties could make a toxic mix for the Imran Khan government, which is limping for the last two years to protect the low-middle-income families from spiking food and energy prices in a sluggish economy.

Where will the combination of the two leave the government is anybody’s guess. But the mix is certain to compound the strain on the economy, which had lost much of the steam because of the government’s policies focused on demand compression even before the Covid-19 crisis had reached the country.

The country’s economy shrank by 0.4 per cent the last fiscal year, the first contraction in 68 years, and there’s little room to be optimistic about a quicker recovery despite improving short-term trends like current account surplus, enhanced workers’ remittances, marginally increased exports, etc.

The government’s inability to check the consistent increase in the food price inflation has left the low-middle-income segments of the population reeling, affording the opposition opportunity to pivot its protest campaign on popular anger against its sloppy handling of food prices in particular and the economy in general.

The economy will have to bear the cost of an extended period of political instability but it will be worth paying if it takes the country closer to a stronger democratic dispensation and longer-term economic stability

Many commentators agree that economic woes are driving a substantial number of people to the opposition’s protest rallies. In Gujranwala, for example, many participants of the first Pakistan Democratic Movement rally complained of the business slowdown, job losses and the government’s failings to check food prices.

“We are fed up with this government; its policies are hurting us,” shouted a young man who said he had come to attend the jalsa out of the dislike he had grown for the Imran Khan administration over its failure to deliver. “The economic ineptitude of the present government has bruised a large segment of society; the continuation of this incompetent government will be a death knell for the low and middle-income people.”

The opposition, according to a political commentator who asked not to be named, will try to topple Imran to pave the way for a new election to cash in on the growing disillusionment of the middle-classes with his government. “If they are unable to pull down Imran — a more likely scenario in the present circumstances, the opposition would want to debilitate his administration to the extent where it cannot deliver during the remainder of its term in power.”

Many analysts feel that Imran may survive the current political onslaught of the opposition — a weaker version of him just like Nawaz Sharif after the six-month-long sit-in staged by the PTI in 2014. But will the political turbulence leave the economy unharmed? Opinion is divided, though only in details.

“What happens next depends largely on how the government responds to the challenge thrown by the combined opposition. If Imran decides to waste his energies on countering each and every move by his opponents, it is unlikely to help him, the economy or the people suffering owing to the sluggish growth and the impact of the health crisis on their lifestyles,” concludes an economic analyst on condition of anonymity because the brokerage house he works for in Karachi does not allow him to comment on politics.

“But if the pressure being mounted on his administration by the opposition parties makes him focus on economic governance challenges and problems like inflation and jobs facing the average Pakistanis, he will not only survive the protests but may emerge stronger.”

Hasaan Khawar, an Islamabad-based public policy expert and international development consultant, believes that an uncertain political atmosphere for an extended period may impact the economy in a variety of ways in the short- to long-term. “One, the impact of political instability will soon reach our capital markets and compel the investors to hold back on and delay their planned investments (in the country).

“Two, the creation of a politically contentious environment could stop the government from taking crucial, tough decisions on structural reforms like privatisation of the state-owned enterprises or implementation of power-sector reforms and so on (to avoid popular political backlash). It also delays legislation on issues that are crucial for the nation’s economic future because of the government’s adversarial relationship with the opposition.”

A couple of businessmen this correspondent spoke with supported peaceful protests as the democratic right of the people, betraying little concern about the potential political instability and its impact on their businesses. “As long as these protests don’t morph into violent incidents or lead to strikes and transport closures, we are fine with them,” said a garment exporter who did not want to identify himself. “Political instability, sectarian and ethnic violence and terrorism are not new to us; our businesses have already adjusted to these kinds of events and built in the costs in our overall plans.”

He, however, acknowledged that every major event leading to political or policy instability imposes certain new costs on the businesses both in the short- to medium-term and (sometimes) in the long-term.

There are others who believe that politicians across the divide realise the costs of disruption to civic or economic life. “In recent years we have seen political parties showing restraint despite provocation from certain elements and keeping their protests confined to a certain area. Imran’s sit-in in Islamabad for six months is one example. During the last two PDM rallies no one even so much broke a flower vase,” another businessman pointed out. “Our politicians know they cannot win over public opinion by causing large scale disruptions. But you cannot guarantee what certain unidentified elements might do to provoke violence,” he wondered.

Mr Khawar doesn’t agree with the suggestion that political protests do not impose any cost on the economy. “There are some direct economic losses resulting from violent incidents (in the shape of business closures, transport blockades, delayed export shipments, vandalism of public and private property and so on). But there are indirect costs that the economy has to bear on the account of political uncertainty. It, for example, is not correct to assume that the PTI sit-in in 2014 did not cost anything to the economy. You may remember Nawaz Sharif’s ministers issuing estimates of economic losses on account of the sit-in running into billions of rupees a day. Besides, it also forced the PML-N government to stall structural reforms and postpone tougher reforms.”

There is no doubt that the economy will have to bear the cost of an extended period of political instability. But it will be worth paying if it takes the country closer to a stronger democratic dispensation and longer-term economic stability. If not, it will be yet another exercise in futility.

Published in Dawn, The Business and Finance Weekly, October 26th, 2020