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   January 24, 2015

Detail

 



POLITICAL INSTABILITY AND PAKISTANI ECONOMY

There exists overwhelming empirical evidence across countries and across time that political instability is negatively related with economic growth and performance. Political instability lowers private investment, slows economic growth, and gives rise to unemployment and poverty. Political instability breeds corruption, mis-governance, shortens policy-makersí horizon, inconsistency in policies, and creates volatility in economic performance.

Pakistan is witnessing a prolonged period of political instability and as such its adverse consequences for the economy are quite visible. The present government failed to find its feet on the ground and continued to lurch from one crisis to another. Political instability persisted throughout with a heavy toll on economy. The government found itself clueless in addressing socio-economic problems in general and external shocks in particular. For a protracted period there were no finance, commerce, petroleum and natural resources and health ministers. It gave the impression of having little sense of direction and purpose. It is strange that the current government, claiming to have a strong majority in the parliament, failed to generate political stability in the country. People within and outside the country had a lot of expectations about political stability, strengthening of democracy, rule of law, and respect for judiciary. The present coalition government thoroughly disappointed the friends of democracy within and outside the country. Print and electronic media continued to highlight the stories of corruption and bad governance which certainly have weakened the government and the writ of the state.

A series of events over the last one year followed by their inept handling contributed to the persistence and acceleration of political instability in the country. The denial of Nawaz government by Imran Khan and his party PTI, the incident of Army public school, suicide attacks in different areas of Pakistan, the operation Zarb-e-Azab in Waziristan and many more continued to weaken the government and breaded political instability. Political instability weakens governance as the government continues to strive for its survival with economy getting the least attention. Political instability shortens the horizon of the government, disrupting long-term economic policies conducive to a better economic performance. Political instability is associated with greater uncertainty regarding future economic policy, it certainly affects investment adversely, slows economic growth, increases unemployment and poverty, which in turn, further fuels political instability by giving rise to violence, civil unrest, and strikes. A higher degree of political instability is associated with lower productivity growth, lower physical and human capital accumulation thus weakening the foundation of long-term economic growth and prosperity.

Pakistanís current state of the economy is the mirror image of the adverse consequences of political instability. Pakistan witnessing its investment rate decelerating, economic growth is slowing, unemployment rising, millions slipping below the poverty line, women and children dying in stampedes for a few kg of wheat, public debt doubling and exchange rate depreciating and fuelling inflation and contributing to the surge in public debt. Pakistan also saw its relations with international financial institutions deteriorating, the Friends of Pakistan showing reluctance in providing financial support and hence overall balance of payments turning negative, foreign investors losing confidence on Pakistanís economy and on its economic managers with consequent nose-diving of foreign investment. In short, a relatively stable and resurgent economy has been destroyed in the last four years owing mainly to mis-governance breaded by political instability.
The political parties must sign a Charter of Economy before going for election. They must agree on certain economic policies and reform agenda for the future of economic growth and prosperity of the people of Pakistan. No political party alone can undertake these reforms. It requires commitment from all the major political parties under the Charter of Economy. They must remember that economic stability and political stability are deeply interconnected. No amount of foreign assistance will propel growth unless conditions like a stable and honest government, market-oriented policies, and willingness to undertake reforms are in place. Aid that goes into poor policy environment does not work. Instead, it contributes to debt and restrains future economic growth.


Madiha Shah
Institute of management Sciences
Peshawar.
 

 

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