THE recent, turbulent political and economic events are manifestations of Pakistan’s once-in-a-generation polycrisis — multiple crises overlapped, reinforcing each other and almost snowballing out of control. If such crises are left unchecked, they can bring about a violent system implosion. It is not surprising that all stakeholders are now trying to get a handle on this upheaval.

Still, it is extremely important to dissect recent events in order to understand why they took place and what can be done to prevent such catastrophes in the future.

In September 2021, with the compact still intact between different power centres, Pakistan’s official foreign exchange reserves crossed $20 billion, which was an all-time high. But, then, two drivers almost simultaneously caused the country’s foreign exchange reserves to plummet precipitously all the way down to less than $3bn in February this year.

The first driver was a political tussle that had first surfaced around October 2021. This tussle then subsequently morphed into a full-blown political and constitutional crisis by late March 2022. So much so, that the new government found its hands tied as it was kept under severe political pressure by elements that were still sympathetic to the previous government.

The second driver was economic. As the world came out of the Covid-19 pandemic in early 2022, prices started rising rapidly in the Global North. Hostilities between Russia and Ukraine in February 2022 led to 40-year-high inflation globally, putting massive stress on the Pakistani economy, which was already struggling with high inflation and the lack of job creation.

Policymakers must address genuine economic concerns as the current stagflation has made life difficult for the vast majority of the people.

The combined impact of these two drivers — political and economic — played out by taking Pakistan’s economy close to a default. Simply put, as global oil prices skyrocketed, Pakistan’s policymakers did not take optimal economic decisions; partly because they were too focused on riding out the political storm and partly because optimal decisions — such as passing on higher oil prices or letting market forces determine the exchange rate — entailed political costs that the new government was not willing to pay.

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Some politicos also added fuel to the fire by manufacturing chaos, insisting that default was imminent, hoping that this would force the system towards general elections. The deliberate strategy they employed resulted in creating needless panic that delayed stabilisation by forcing people to acquire more and more foreign exchange, thereby further stoking inflation in the country.

Though the economy’s external position has somewhat stabilised, this stabilisation has come at a very steep cost of almost no economic growth during this fiscal year — a meagre 0.29 per cent. Alarmingly, last year’s super floods in the country and the highest-ever inflation — a whopping 38pc — have pushed an estimated 20 million additional people below the poverty line. Estimates also show that the lack of economic growth will increase the number of unemployed people in Pakistan to more than 10m.

As the dust settles, these recent events carry a number of policy lessons.

First, these appalling economic indicators underscore an urgent need to get a grip on Pakistan’s economic slide, especially as almost 2m young people, who enter the job market every year, either face unemployment or are underemployed and are forced to take up jobs that are inadequate in relation to their training and economic needs. According to the Asian Development Bank, given Pakistan’s employment elasticity at 0.5pc, it would take economic growth of at least 7pc to create a sufficient number of jobs.

Policymakers must address these genuine economic concerns as the current stagflation has made life especially difficult for the vast majority of the people. Failing to address these concerns will likely lead to a much more severe — existential almost — polycrisis in the near future.

Second, the ability of some elements to manufacture chaos also highlights the crucial role that technology, especially social media, played in the recent crisis. Niloufer Siddiqui, a political science professor, argues that the traditional Pakistani politics of electables and patronage is changing and that political parties are increasingly wooing young voters through new narratives on social media.

Some of these manufactured narratives, sadly, are beyond the pale, as vitriol has ended up damaging the national spirit. Young people, in particular, are losing faith in the political leadership’s ability to steer Pakistan out of its present set of difficulties. Other countries also go through upheavals, but the people fight back. In the case of Pakistan, even when the economy has generated a current account surplus for two consecutive months, the Pakistani rupee is still sliding against the US dollar.

Policymakers need to find ways of employing technology to communicate facts and counter hate speech in order to prevent the youth from losing hope. The significance of better communication for the youth cannot be stressed enough, as Pakistan is a very young country with a median age of only about 23 years. Better communication is also very important, as the advent of generative artificial intelligence is now making the spread of deepfakes very easy.

Last, and perhaps most importantly, Pakistan’s perennial political problem needs to be confronted. Every few years, political space in the country seems to become too narrow for some political parties. Such purges are extremely damaging for the political system in the long term, because vibrant political parties, as Samuel Huntington argued in 1968, serve as primary safeguards against social violence.

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Policymakers must do their utmost to ensure that the political space stays wide open so that political parties are given the opportunity to evolve or wither away democratically. Pakistan must not take an authoritarian turn, as this would erase the tangible gains this political system has made in the direction of democracy.

This polycrisis may be abating, but this is not its swansong as the core drivers remain intact. There is a very high probability that future crises will be more severe. In other words, those people who are celebrating because they are convinced this crisis has ended, could be in for a rude awakening.

The writer completed his doctorate in economics on a Fulbright scholarship.
aqdas.afzal@gmail.com
Twitter: @AqdasAfzal

Published in Dawn, June 9th, 2023