The economy of Pakistan has been on a roller coaster ride and news of Shahbaz Sharif government’s failure to secure a bailout package has further pushed the future towards uncertainty. But what lead to this unprecedented situation? A nation once boasting solid economic growth despite being an Islamic nation is now facing power cuts and fuel shortages. Let’s take a dive into this interesting subject from a socio legal perspective.
While governing colonial presence withdrew from the global south years back, the effects and socioeconomic ramifications of colonial policies and actions have continued to mark the developments of the economies of said countries. The nation of Pakistan was demarcated by the British during the Partition with the majority of the northern fertile lands being allocated to it and the majority of armed forces being handed to India. Therefore, it started off as a disadvantaged agrarian economy with low assets and an overflow of refugees. The reconciliation of a novice yet slow economy was assessed and acted upon by different leaders via varied approaches tethered with steep political instability, unfavourable involvement of terrorist organizations, and the complicated nature of Pakistan’s relationship with foreign aid from international organizations and other first-world countries, dominantly, The United States of America.
An evaluation of the economic development can be done by analyzing how multiple military takeovers were justified by the Supreme Court of Pakistan on account of a dipping economy, the political instability of the region, the state of the nation under Gen. Musharraf, Zia Ul-Huq and both generations of the Bhuttos and inefficient allocation of foreign aid. Along with that, the current 2022-23 economic crisis is a phenomenon that is a result of the buildup of previous failures and current policies.
A Brief History of Pakistan’s Economy
The period from 1947-58 saw little to no economic growth or development given that the nation was initially occupied with drafting a constitution and later, making the transition from an agrarian to a semi-industrial economy. Although, the end of this era saw some light due to the rise in Pakistan’s exports due to the Korean war, which in turn resulted in GDP growth. Right after the war, the separation of East Pakistan from Pakistan took place which was a period of astute political instability which left no room for economic prosperity.
With Zia-ul Hug coming in 1977 with the concept of an Islamic economy, the situation shifted to an ostentatious one. This was because contrasting to its current image, the economy of Pakistan was considerably doing well with a satisfactory growth rate of over 5% and declining poverty by the end of the 1980s. To comparatively show the progress, the Indian economy in the 1980s grew at 5.5% per annum while the Pakistani economy grew at about 7% per annum. Agriculture expanded at twice the rate while two big dams were built as well. Although, what becomes evident when we read about Pakistan’s economic policy at the time, is that it made way for significant economic achievements but very faint social development.
While on paper, the country was financially prospering, the benefits of this prosperity were not being reflected in the lives of the citizens. The people of the country were still swimming in chronic poverty, earning lesser and losing the ability to afford gas or food.
Foreign Aid and Loans
An aspect of Pakistan’s financial history and present that cannot be unaccounted for is the influx of foreign aid and loans provided by other countries as well as international organizations like the Brenton Woods Organisation. In total, the United States obligated nearly $67 billion (in constant 2011 dollars) to Pakistan between 1951 and 2011 Bills permitting billions of dollars to be sent to Pakistan were passed in the US senate, emphasizing that this aid was primarily for protection against unpredictable geographical threats via military expansion and investment in long-term development programs.
The US offered its seemingly unwavering allegiance to Pakistan since the nation’s being situated near China and India, provided the hegemon with a politically strategic position. Unfortunately, this abundance of money was not utilized well. This was due to various reasons like concerns about corruption levels, resistance to deploying aid despite the lack of systemic reforms in institutions that were deeply flawed, and different political leaders siphoning money instead of investing in areas of education, healthcare, employment, etc. On top of these issues, the lack of transparency due to a state of oblivion about where the money was being spent made it difficult to determine why the Economy of Pakistan was drowning in debt yet there was no scarcity of aid being provided
A major factor behind the tumultuousness of Pakistan’s economy is the turbulent nature of party politics, military dominance in politics, and the governance practiced by them. Shortly after the partition which satisfied the demands of the Muslim League for a separate Islamic State, the League lost support as it claimed to speak for all Muslims in the sub-continent and how they unanimously wanted a separate state, which was untrue. Due to a lack of effective party machinery and the ever-accelerating phenomenon of the League losing control over the populace, the new nation was found to be in a vulnerable position. This early disruption left the land perceptible to a future of prolonged political instability and the economy of Pakistan took a huge hit.
The first military coup came in 1958 when General Ayub Khan overthrew the government. This period saw rapid industrial growth with the private sector being encouraged to set up shops and increased employment opportunities. His goal for his tenure was to establish the dominance of industrialization. After Khan, the reigns were handed the General Yahya Khan under whom the violent separation of East Pakistan occurred. This event forced the general to hand power over to the PPP (Pakistan’s People’s Party) which rose during the resistance, led by Zulfikar Ali Bhutto. This leader introduced several socialist economic policies aimed at nationalizing industries to allocate funds properly and make the lives of the citizens, particularly the workers enhanced.
The short-term produced negative effects which paid off later in Zia’s regime, making Bhutto infamous for having the worst economic conditions during his tenure. This pattern of military generals replacing democratically elected leaders and vice versa continued in Pakistan for years to come, leaving the economy of Pakistan with no ability to recover from one leader’s policy while transitioning to the other.
The involvement of terrorist groups in Pakistan also left a hefty burden on the economy of Pakistan, where social disruptions became so violent that the economy had no room to breathe and expand. With the nation being the hiding spot for Osama bin Laden after 9/11 and its repercussions on the state and the Taliban being present physically to limit the freedoms of the people, the nation suffered in all aspects whether social, political, or economic.
The Current 2022-23 Crisis and Concluding Remarks
Currently, Pakistan is experiencing a highly endangering economic crisis on account of rising unemployment, poverty, and inflation posing the possibility of the right of millions to food, healthcare, and wages being stripped away. The country has been unable to meet the conditions of the IMF for the next installment of loans to be provided. This possibility of a lack of bailout comes at a vulnerable time as the country’s national reserves are depleting and are at an extremely low value of $3 billion dollars. This topped with the dire conditions produced by the floods, makes the nation highly perceptible to economic decline.
Despite the challenges faced by the economy of Pakistan, there is hope for revival. Aspects of the country that have come to be at a disadvantage due to politically and economically ill policies, can be re-utilized to pull the economy from the trenches and shine a brighter light upon it. One is its regional strength which can lead to the country becoming a hub of financial prosperity if the right initiatives are taken up. Infrastructure development along with Industrial development with better connectivity to railways or roads with a skilled workforce. This can aid the economy in building economic corridors connecting the country’s output to the global supply chain. The second, however, is most crucial and urgent which is development. Social, political, and economic development is vital for an economy to prosper. A majority of the financial aid that the country procures via loans or foreign aid along with taxes must be redirected into educational, healthcare, and skill development. Concentrating on enhancing the lives of the citizens via economic reforms rather than pouring money into volatile governments and their nontransparent processes can slowly but steadily put Pakistan on the track to a thriving economy
About the Author
Mannat is a student of Philosophy at Lady Shri Ram College for Women, Delhi University. She enjoys reading and discovering new ideas and ways of approaching her academic interests. With a knack for being restless, often indecisive but at the same passionate, she is always ready to take up new endeavors to challenge herself. Shifting from Jstor articles to movies on her Chrome tabs, she hopes to write more and open new pathways for learning of all sorts.