The Challenges of Stability Amid Chaos | Political Economy

PPolitical revolutions often follow deep discontent. Civil disobedience, protests, and (sometimes) violent action are used to challenge and overthrow governments. These movements aim to remove incumbent leaders and install popular rivals. Recent examples of such upheavals include the 2011 Arab Spring, which saw the ousting of Hosni Mubarak of Egypt and Zine El Abidine Ben Ali of Tunisia, but these changes have not produced lasting improvements.

The subsequent unrest in Egypt under Mohamed Morsi, whose presidency was marked by intense political conflict and his eventual ouster by the military, is an example of the instability such revolutions can bring. Tunisia, despite a change in leadership, continued to face economic challenges. Libya’s Muammar al-Gaddafi was killed in a prolonged civil war, leading to further conflict, and Yemen’s Ali Abdullah Saleh resigned, leading to endless instability.

In Bangladesh, the resignation and flight of Prime Minister Sheikh Hasina amid intense student protests also speaks to the fluidity of such revolutionary movements. Her term, marked by significant economic growth and infrastructure development, has been overshadowed by accusations of authoritarian practices, including suppression of dissent and human rights abuses. The brutal ransacking of her residence and subsequent clashes with law enforcement have exposed the nature and depth of social unrest and the breakdown of respect for legal institutions.

This breakdown of order has given the military a significant role, which will now determine the shape of the caretaker government and its own role in domestic affairs. In the short term, the breakdown has clearly undermined democratic principles. The question remains whether the military’s intervention will lead to significant improvements or to further instability and chaos. The caretaker government faces the daunting task of coping with significant economic losses, managing ongoing political instability, and steering the country toward democratic rule. The effectiveness of the new leadership in dealing with these challenges will determine whether Bangladesh can move from this period of upheaval to a state of lasting stability and positive progress for its citizens.

Pakistan’s political environment has long been marked by frequent upheavals and instability, fueled by a series of coups. Military dictatorships under Ayub Khan, Zia-ul Haq, Yahya Khan, and Pervez Musharraf established hybrid regimes that blurred the lines between civilian rule and military control.

The legacy of hybrid authoritarianism is still with us. Judicial activism and sporadic establishment influence have often shaped the country’s governance. Political parties and citizens have often been duped by promises made by undemocratic forces. Leader cults and intolerance of dissent have polarized society, hindering democratic progress.

In the wake of recent events in Bangladesh, some opposition leaders and their supporters in Pakistan have expressed a desire for a similar upheaval, ignoring the grave economic and security challenges that have plagued the country since 1958. Such responses fail to recognize that our current situation requires a comprehensive transformation of political, governance, and judicial practices, not further disruption.

The initiation of a meaningful dialogue among political leaders, coupled with a pact to support democratic governance and reject undemocratic forces, is essential to ensure lasting stability, paving the way for economic stabilization. Amidst the continued instability, fiscal year 2022-23 closed with a negative GDP growth of 0.21 per cent, reflecting the critical situation that adversely affects every sector. With better economic management and timely interventions, the GDP growth rate is expected to reach 2.38 per cent in 2023-24. This shift towards stability is primarily the result of aggressive recovery measures that have managed to arrest the economic decline but have also caused significant disruptions at the national level for businesses and households.

In the face of many challenges, a sustainable recovery requires cautious efforts to avoid overwhelming key sectors of the economy. Government officials have stressed that drastic reforms were needed to prevent serious economic repercussions. With improving macroeconomic indicators, there is cautious optimism that the coming years will bring a period of recovery and economic stability.

It is essential for all political forces to cooperate, recognizing that unity and cooperation are essential for strengthening democracy and transforming governance. Only through united efforts can Pakistan enter the path of economic growth and stability.

In 2024, Pakistan recorded a primary surplus of Rs 952.92 billion, which is 0.9 per cent of GDP. This achievement marks a significant improvement as a primary surplus was achieved for the first time in over a decade and a half, making it a rarity since 1984. On the external front, the country made significant progress by reducing the current account deficit to $681 million. BOOR previously a cause for concern, reaching a worrying $17.4 billion by the end of 2022. This has been a major factor in the recent economic instability, raising serious questions about the sustainability of Pakistan’s foreign trade.

Significant reduction BOOR highlights the improvement in external economic stability. In addition, positive developments have facilitated recent staffing levels agreement with the International Monetary Fund for a 37-month, $7 billion Extended Fund Facility. The agreement, reached with remarkable efficiency, reflects the IMF’s confidence in the macroeconomic stability achieved over the past year. The smooth negotiations underscored the progress Pakistan has made in stabilizing its economy and securing international financial support.

Inflation has shown significant improvement and has been declining since January 2024. In July 2024, the consumer price index stood at 11.1 percent year-on-year, compared to 12.6 percent in the previous month and 28.3 percent in July 2023. This easing in inflation has allowed interest rates to enter the positive territory by a significant margin. In response to these developments, the Monetary Policy Committee of the State Bank of Pakistan recently decided to cut the benchmark rate by 100 basis points, bringing it down to 19.5 percent.

The improvement in inflation and interest rates has come at a crucial time. However, serious challenges remain, especially the fiscal deficit, which continues to put pressure on overall economic stability. Despite the achievements primary surplusfiscal deficit widened to 7.2 trillion rupees (6.8 percent of GDP). This indicates that the government continues to be heavily dependent on borrowing to meet its financial obligations. The large fiscal deficit underscores the need for comprehensive, prudent fiscal management and effective strategies to ensure long-term economic stability.

Successive governments have struggled to effectively manage the fiscal deficit. No comprehensive action plan has emerged to address the problem. Despite various announcements of austerity measures, such as closing redundant ministries and reducing development spending, there has been no tangible improvement.

WITH 18th Amendment to the Constitution on the ground, it is increasingly important to have a unified national approach. Federal and provincial governments must work together to increase their revenue streams and eliminate inefficiencies. The last federal budget continued to focus on increasing the tax burden on existing taxpayers and sectors already in the tax net. For the 24th EFF, IMF press release The “key target” was identified as follows:

“A fairer balance of fiscal efforts between the federal and provincial governments, which have agreed to rebalance spending in accordance with the 18^t “A constitutional amendment by signing a national fiscal compact that directs provincial governments to spend more on education, health, social protection and investments in regional public infrastructure, enabling better delivery of public services. At the same time, provinces will take steps to increase their own tax collection efforts, including the sales tax on services and the agricultural income tax. For the latter, all provinces have committed to fully harmonizing their agricultural income tax systems through legislative changes with the federal personal and corporate income tax systems. This will take effect on January 1, 2025.”

Unfortunately, this measure is seen as an “imposed requirement” rather than a government initiative. This reflects badly on the country’s commitment and its ability to effectively address the fiscal deficit. In the face of serious economic challenges, where aggressive measures are seriously affecting the lives of ordinary citizens, the attention of politicians, the establishment and the judiciary seems to be inconsistent.

This approach ignores the reality that no leader, regardless of his background, can solve these challenges without the support of all political forces and public opinion. Policymakers have failed to recognize that excessive burden on taxpayers will certainly hinder economic growth. This situation highlights the critical gap between government performance and the urgent needs of the people. It is therefore imperative that all political forces work together and recognize that unity and cooperation are essential to strengthen democracy and transform the system of governance and justice. Only through such concerted efforts can Pakistan embark on a path of sustainable economic growth and stability.

---

Dr Ikramul Haq, writer and Supreme Court advocate, is a lecturer at the University of Management Sciences, Lahore.

Abdul Rauf Shakoori is a US-based corporate lawyer.