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An Economic Crisis in Pakistan Again: What’s Different This Time?

Photo: AAMIR QURESHI/AFP/Getty Images

Critical Questions by Daniel F. Runde and Ambassador Richard Olson

Published October 31, 2018

Pakistan’s newly-elected government is already dealing with a balance of payments crisis, which has been a consistent theme for the nation’s newly elected officials. Pakistan’s structural problems are homegrown, but what is different this time around is an added component of Chinese debt. Pakistan is the largest Belt and Road (BRI) partner adding another creditor to its already complicated economic situation.

Pakistan’s system is ill-equipped to make changes which would avoid future excessive debt. A bailout from the International Monetary Fund (IMF) is probably the safest bet for the country although it is unclear whether the United States will support the program. How Pakistan decides to handle its debt crisis could provide insight into how the U.S., IMF, and China will resolve development issues in the future. Beijing is a relatively new player in the development finance world so much is to be learned from how it deals with Pakistan and how it could possibly maneuver in other developing countries in Asia, Africa, and Latin America.

Q1: What is Pakistan’s current financial and economic situation?

A1: Pakistan held its most recent elections in July 2018. The Pakistan Tehreek-e-Insaf party gained over 100 seats in the parliament, and its founder Imran Khan , a famous cricket team captain, was installed as prime minister. Prime Minister Khan has inherited a balance of payments crisis , the third one in the last 10 years. By the end of June 2018, Pakistan had a current account deficit of $18 billion , nearly a 45 percent increase from an account deficit of $12.4 billion in 2017. Exorbitant imports (including those related to the China-Pakistan Economic Corridor (CPEC)) and less-than-projected inflows (export revenues and remittances) have led to a current account deficit widening, with foreign currency reserves levels covering less than two months of imports—pushing Pakistan towards a difficult economic situation .

Part of Pakistan’s financial crisis stems from the fact that 2018 was a poor year for emerging markets. Global monetary tightening, increased oil prices, and reduced investor confidence have negatively impacted the country’s already precarious economic situation. But the country’s deep structural problems and weak macroeconomic policies have further exposed the economy to an array of debt vulnerabilities.

Pakistan has had an overvalued exchange rate, low interest rates, and subdued inflation over the last few years. This loose monetary policy has led to high domestic demand, with two-thirds of Pakistan’s economic growth stemming from domestic consumption. An overvalued exchange rate has led to a very high level of imports and low level of exports. Pakistan’s high fiscal deficit was accelerated even further in 2017 and 2018 because elections have historically caused spending to rise (both of the most recent fiscal crises followed elections). Perhaps the greatest financial issues facing Pakistan are its pervasive tax evasion and chronically low level of domestic resource mobilization. Taxes in Pakistan comprise less than 10 percent of GDP , a far cry from the 35 percent of countries that are part of the Organisation for Economic Co-operation and Development (OECD). Pakistan also suffers from impediments in the energy sector through frequent and widespread power outages that hurt its competitiveness.

In Western media, Chinese investment is often cited as the main driver of Pakistan’s debt crisis. This is somewhat true as China’s BRI makes Pakistan a key partner through the shared CPEC. The CPEC is a $60 billion program of infrastructure, energy and communication projects that aims to improve connectivity in the region. CPEC infrastructure costs have certainly placed a greater debt burden on Pakistan, but the current structural problems are homegrown; the root cause of the energy shortages is now less a matter of power generation, and more of fiscal mismanagement of the power sector .

Q2: What are Pakistan’s options?

A2: Pakistan appears to be in perpetual crisis-mode, and for too long the Pakistani government has been overly reliant on U.S. bilateral assistance. While it may not be the first choice of the Pakistani government, an IMF bailout is the most likely outcome of this financial crisis because it is probably the only path for Pakistan to regain its macroeconomic stability. Any “bailout” from a bilateral donor (meaning China or Pakistan’s Gulf State friends, including Saudi Arabia which has recently provided Pakistan $3 billion for a period of one year as balance-of-payment support) will not get at the root issues that Pakistan faces—its loose macroeconomic, fiscal, and monetary policies. Pakistan needs to get its house in order and remedy many of its domestic economic issues. 18 out of Pakistan’s 21 IMF programs over the last 60 years have not been completed despite obtaining over $30 billion in financial support across those programs. Just like today’s current financial crisis, Pakistan’s last two IMF packages (in 2008 and 2013) were also negotiated by incoming governments.

Q3: Would the U.S. support a new IMF Pakistan program?

A3: The current U.S. administration and Congress would not be supportive of additional bilateral funding to Pakistan—meaning money coming directly from the United States. Since 2001, Pakistan has been the beneficiary of the U.S. Coalition Support Fund (CSF), which reimburses allies for costs incurred by war on terrorism. The CSF is used to reimburse Pakistan for U.S. military use of its network infrastructure (e.g., ports, railways, roads, airspace) so that the United States can prosecute the war in neighboring Afghanistan, as well as certain Pakistani military counter-terrorism operations. The CSF for Pakistan has been as high as $1.2 billion per year, and, in recent years, $900 million per year. With nearly $1 billion in CSF distributed every year, along with $335 million in humanitarian assistance, it will be difficult to convince Congress to appropriate more funds for a Pakistan bailout yet. However, due to inaction on the part of Pakistan to expel or arrest Taliban insurgents operating from Pakistani territory, the United States has recently cut another $300 million from the CSF, bringing the total to $850 million in U.S. assistance withheld from Pakistan this year. In fact, all security assistance to Pakistan, whether it is international military education and training, foreign military financing, or the CSF, has been suspended for this year according to one State Department official.

An IMF program for Pakistan faces resistance from some members of Congress. A group of 16 senators has already signed a letter to President Trump that outlines their opposition to bailing out Pakistan because the IMF package would, in effect, be bailing out Chinese banks.

The Trump administration has also taken a hardline stance towards assisting Pakistan with its financial crisis. Secretary of State Pompeo stated this past July that he would not support an IMF bailout that went towards paying off Chinese loans. In September, Secretary Pompeo visited Pakistan, and there were indications that the United States would not block an IMF program. If an IMF program is enacted, there is no doubt that it would have stronger conditionality and a greater insistence on full transparency of Pakistan’s debt obligations.

Q4: Would an IMF package be a bailout of the Chinese?

A4: The terms of Pakistan’s loans with China are currently unclear and multiple news outlets have reported that Pakistan has refused to share CPEC information with the IMF. However, it is not unreasonable to presume that the terms in those contracts would be more demanding than terms typically asked by the IMF. Unless the terms between Pakistan and China and its state-owned enterprises (SOEs) are disclosed and made clear to the IMF, then it is unwise for the IMF to proceed with a bailout package.

The IMF’s focus is not in projecting power and influence; rather it seeks to help struggling nations get back on their feet. The same cannot be said for China. China appears to be most interested in spreading its influence and gaining valuable assets for its military and expanding economy, while at the same time exporting its surplus capacity for infrastructure building. In its annual report to Congress, the Department of Defense reiterated this concern, “countries participating in BRI [such as Pakistan] could develop economic dependence on Chinese capital, which China could leverage to achieve its interests.”

Of Pakistan’s nearly $30 billion trade deficit, 30 percent is directly attributable to China . If China were concerned about the economic crisis in Pakistan, it would make immediate concessions which Pakistan Finance Minister Asad Umar says China is working on . To help with the crisis, China could readjust its trade surplus with Pakistan in different ways. For example, China could buy Pakistani cement and other purchases in the short term to illustrate that they are aware of and swiftly responding to the economic turmoil in Pakistan. Other nations have struggled with debt obligations to China. For instance, in July 2017, Sri Lanka signed over a 99-year lease for Hambantota Port to a Chinese SOE because of Sri Lanka’s inability to pay for BRI costs. Malaysia took a different path and decided to cancel major infrastructure projects with China in August 2018 due to worries that they would increase its debt burden .

Q5: What are the consequences if there is no IMF package?

A5: It is likely that China will provide even more assistance to broaden Pakistan’s dependency. Chinese banks and SOEs have already invested heavily into Pakistan, so much so that state bank loans have not been fully disclosed to the global community. In fact, Pakistan’s Status Report for July 2017 through June 2018 shows that Chinese commercial banks hold 53 percent of Pakistan’s outstanding commercial debt. However, that percentage may be even higher than the report depicts. While China and Pakistan have agreed to make all CPEC projects readily available to the public, the information is scattered and often left blank on essential financial reports (see July-June 2017 document ), and so it is difficult to obtain a full sense of the degree of Pakistan’s indebtedness to China. Again, much of the loan information provided by the Pakistani government, especially concerning China, is not entirely transparent.

If China chooses to follow through and become the “point person” for an assistance package, the pressure will be taken off the IMF. But, if the United States does not support an IMF package, it will forego major geopolitical potential in the region to its main competitor, China.

Pakistan represents a litmus test of all future cases in which the IMF, United States, China, and any emerging market country are all involved. Depending on how Beijing chooses to navigate Pakistan’s financial crisis, China may soon find itself responsible for rectifying the debt burdens of Zambia and many other BRI countries.

Q6: What are U.S. geopolitical “equities” in Pakistan?

A6:  The United States is invested in Pakistan because of its significant geopolitical importance.

• Pakistan is an important component of the balance of power in South Asia. Both India and Pakistan have nuclear weapons capabilities. Moreover, China, India, and Pakistan have been in dispute over the Kashmir region since 1947. Regional stability is in the interest of the United States.
• Despite its ambiguous stance on militant groups, Pakistan is ostensibly an ally of the United States because of its proximity to Afghanistan. Since the War on Terror began in 2001, Pakistan has been an active partner in the elimination of core al Qaeda within Pakistan and has facilitated aspects of the U.S. military campaign in Afghanistan.
• The United States now seeks a negotiated settlement to the conflict in Afghanistan. To accomplish this, perhaps the United States will come to Pakistan with a simple offer: “deliver the Taliban, and we will give you the IMF.”
• Whereas previous administrations may have tried to “play nice” with Pakistan, under the Trump administration, there is a chance that the U.S. government will push the IMF to adopt stricter terms for a Pakistan bailout, citing the Pakistani government’s failures of the last two programs.
• Other than strategic military importance, one of the most important national security challenges to the United States is Pakistan’s demographic trends. Currently, over 64 percent of Pakistanis are under the age of 30—the largest percentage of youth in the country’s history. Over the next 30 years, Pakistan’s population will increase by over 100 million, jumping from 190 million to 300 million by 2050 . The spike in youth population presents an opportunity for the U.S. government and private sector to increase investment in Pakistan. Pakistan’s economy must generate 1 million jobs annually for the next three decades and GDP growth rates must equal 7 percent or more per year to keep up with the population boom. Were Pakistan’s economy to collapse, the world would see the first instance of a failed state with a substantial arsenal of nuclear weapons.
• An economically healthy Pakistan could be a large market for U.S. goods and services. If the U.S.-Pakistan relationship is strained as a result of this financial crisis, it will not only harm the United States militarily but will also harm U.S. businesses and Pakistani consumers.

Q7: Should the U.S. support an IMF package to Pakistan?

A7: Given the geostrategic importance of Pakistan for the United States, we should support a package but with stronger conditionality than in 2013 along with full transparency and disclosure of its debt obligations.

Daniel F. Runde is senior vice president, director of the Project on Prosperity and Development, and holds the William A. Schreyer Chair in Global Analysis at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Richard Olson is a non-resident senior associate at CSIS. He is the former U.S. ambassador to the United Arab Emirates and Pakistan; most recently he served as the U.S. special representative for Afghanistan and Pakistan during the Obama administration. Special thanks to CSIS Project on Prosperity and Development program coordinator Owen Murphy and intern Austin Lucas for their contributions to this analysis.

Critical Questions   is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

© 2018 by the Center for Strategic and International Studies. All rights reserved.

Daniel F. Runde

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Pakistan Economic Crisis [UPSC Notes]

Pakistan, India’s neighbour, has been in a tight spot over its economy for some time now. Amidst very high inflation and extremely low forex reserves, the country has been denied further funds from the International Monetary Fund (IMF). This is an important development in international affairs and is hence a relevant topic for the IAS exam . In this article, you can read all the latest about the economic crisis in Pakistan.

A delegation from the IMF arrived in Pakistan to attempt last-ditch negotiations to restart crucial financial aid that has been frozen for months. As Pakistan fights a worsening economic crisis, the country’s prime minister claimed that the government would have to accept “beyond imagination” IMF bailout requirements. For fear of reaction before the upcoming elections in October 2023, the Pakistani administration has refused to implement the tax increases and subsidy reductions that the IMF has required.

Economic Crisis in Pakistan Explained

The Pakistani economy is in dire straits as explained below.

• High Inflation: Pakistan experienced a high inflation in 2022 of about 24.5%. The percentage was about 29% higher in rural Pakistan.
• High Indebtedness: Pakistan has long struggled with a number of issues; its current condition is not new. Due to this, Pakistan is heavily indebted to friendly countries and the International Monetary Fund (IMF).
• Weak External Position : Pakistan was finally taken off the Financial Action Task Force ( FATF ) grey list in 2022, after being on it for many years. This had an impact on Pakistan’s standing globally and led to the imposition of several economic sanctions.
• Food Crisis: The cost of perishable foods has increased by over 56%. In Pakistan, the cost of wheat flour has been steadily rising to uncomfortable proportions.
• Rising Terrorism: In an effort to split Pakistan into two countries, Tehreek-e-Taliban Pakistan (TTP) has increased its terrorist activities there since 2022.

Crisis in Pakistan Causes

Some of the major reasons for the current situation in Pakistan are:

• 2022 floods: The floods in Pakistan in 2022 cost the nation an unprecedented $3 billion in damages, destroyed essential infrastructure, uprooted 8 million people, and reduced domestic output.
• Economic policies that are inconsistent and procyclical : Many of Pakistan’s growth-enhancing initiatives came at the expense of growing vulnerabilities and enduring structural and institutional shortcomings.
• Local problems: According to analysts, Pakistan’s distribution challenges are more of a concern than its insufficient supply levels, which have led to shortages and price increases.

IMF Bailout Package for Pakistan

• A nation is in serious economic trouble when it approaches the IMF for a loan.
• To pay for imports and loan repayments in particular, it lacks sufficient foreign currency (or “dollars”). 
• Basically, the nation is unable to pay its debts abroad. It hence requires a bailout.
• But the IMF will set some restrictions. Spending less, both at home and abroad, is a fundamental requirement.
• Increasing energy rates
• Imposing more taxes
• Artificial control over the exchange rate

About Extended Fund Facility (EFF):

• It was created to help nations dealing with severe payment imbalances brought on by structural barriers, poor growth, and an inherent weak balance-of-payments position.
• It offers support for comprehensive initiatives that include the regulations required to permanently address structural inequalities.
• It serves to assist national economic plans aimed at achieving macroeconomic stability and sustainability in line with robust and long-lasting poverty reduction and growth.
• The Extended Credit Facility (ECF) might also act as a catalyst for new international aid.
• It is accessible to all member nations that meet the requirements of the Poverty Reduction and Growth Trust (PRGT) and have a persistent Balance of Payments (BOP) issue.
• Assistance under an Extended Credit Facility (ECF) agreement is given for an initial period of three to five years, with a five-year overall maximum.
• Additional ECF arrangements may be approved after the expiration, cancellation, or termination of an ECF arrangement.
• Under the ECF, member nations consent to put in place a series of measures that will advance them toward a long-term, stable, and sustainable macroeconomic position.
• The letter of intent from the nation outlines these pledges in detail, along with any additional terms.

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A Complete essay to Get extra marks in CSS PMS

Essay Outline: Economic Challenges Faced by Pakistan

Table of Contents

It is an open secret that writing standard English and grammatical accuracy play a vital role in success in essay writing for CSS Exam. You should know the art of literary and scholarly writing. It needs a long discussion to expatiate about improving written English but let me give you some rudimentary tips. A basic attribute which is to learn idiomatic usage in writing an essay should be developed. For earning grammatical accuracy in your writing, study English grammar thoroughly (not cursorily) to learn the correct usage of grammatical units i.e. verbs, adverbs, adjective, coordination, subordination, subject-verb agreement, phrasal verbs etc.

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1. Introduction:

2. Brief History about economy of Pakistan:

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3. Challenges faced by Pakistan:

• We Consume More and Save Less
• We Import More and Export Less.
• Government spends more than it earns as Revenues
• Low Tax to GDP ratio
• Devaluation of money
• Trade deficit and balance of payment issue.
• Our Share in the World Trade is Shrinking
• Poor health and educational facilities
• Political instability
• Immature media
• External debt, caught in foreign cloches.
• Mismanagement and underutilization of natural resources
• Energy crisis
• Incompetent judiciary
• Low capital formation
• Population pressure
• Agrarian economy
• Inconsistent policies
• Untrained Labor force

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4. Causes of economic turmoil:

• Mismanagement
• Wealth Concentration
• Lack of good governance
• External debt
• Public issues unresolved.
• Poor law and order situation.
• Trade deficit

5. Remedial measures:

• Exploration of new markets
• Industrialization
• Tight monetary policy
• Investor’s friendly policies
• Regional peace
• Improved law and order
• Good governance:

6. Conclusion:

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Implications of Economic Crisis In Pakistan

• Areeba Fatima
• January 14, 2024
• CSS , CSS Essays , CSS Solved Essays

CSS & PMS Solved Essays | Implications of Economic Crisis In Pakistan

Areeba Fatima, a Sir Syed Kazim Ali student, has attempted the CSS & PMS essay “Implications of Economic Crisis In Pakistan” on the given pattern, which Sir  Syed Kazim Ali  teaches his students. Sir Syed Kazim Ali has been Pakistan’s top English writing and CSS, PMS essay and precis coach with the highest success rate of his students. The essay is uploaded to help other competitive aspirants learn and practice essay writing techniques and patterns to qualify for the essay paper.

1-Introduction

If the economic crisis in Pakistan is not dealt sagaciously, the country might experience crucial implications, including the collapse of the economy, monetary collapse, and security threats.

2-Economic profile of Pakistan

3-Current situation of economic crisis in Pakistan

• Evidence:  According to the Centre for the Study of Education in an International Context (CEIC), “The Gross Domestic Product (GDP) in Pakistan expanded 1.7 % in June 2023, following a growth of 4.7 % in the previous year.”

4-Implications of economic crisis in Pakistan

• Evidence:  The recent Sri Lankan collapse is the dire consequence of the economic crisis.
• Evidence:  Zimbabwe’s monetary collapse happened due to the government’s poor monetary policies, the glaring example
• Evidence:  Like Somalia, Afghanistan, and Chile, Pakistan also facing a food crisis and insecurity
• Evidence:  The American Civil War of 1861-1865, the dire consequence of economic disparity
• Evidence:  The fate of Pakistan can be the same as Sri Lanka, which has to cut its military spending.  
• Evidence:  Syria and Afghanistan, the example of failed states, become unable to reduce economic disparity
• Evidence:  Pakistan, faced such grim repercussions in the form of the downfall of Ayyub owing to his incompetent economic policies

5-Remedies to counter the implications menace of economic crisis

• ✓To re-orient the economy from imports to exports by introducing long-term financing policies
•  ✓To promote industrial growth by setting up small-scale industries
• ✓To increase public participation by strengthening civil society

6-Critical Analysis

7- Conclusion

It is indisputable that a solid economic footing is a fundamental prerequisite for a country’s development and prosperity. Unfortunately, Pakistan’s economic downfall has not only tarnished its image but also pushed it to the brink of bankruptcy. As stated by Derek Chen, the Senior Economist of the World Bank, the decline in exports as a share of GDP has severe implications for the country’s foreign exchange, jobs, and economic growth. It is high time that Pakistan confronts the core challenges necessary to compete in global markets. Failure to do so could have dire consequences, including the collapse of the economy, which would severely impact the country’s social, economic, and political fabric. Monetary collapse, security threats, and regime overthrow are just a few of the potential outcomes if the issue remains unaddressed. However, there is still hope. As Atal Bihari Vajpayee aptly remarks, empowering the individual means empowering the nation, and empowerment is the best server of rapid economic growth with rapid social change. It is time for Pakistan to take the necessary steps towards economic revival and empower its people to achieve sustainable growth. The country can fuel its economic development by promoting industrial growth, re-orienting the economy towards exports, and increasing public participation.

Understanding the country’s economic profile, Pakistan’s economy is classified as a developing economy. It is a mixed economic system with free-market activity and government intervention. Further,  Pakistan’s economy is the 24th largest in gross domestic product (GDP) based on Purchasing Power Parity (PPP) and the 46th largest in nominal GDP.   This Gross Domestic Product is estimated to have contracted by 0.6 per cent in Fiscal Year 2023 after two consecutive years of stellar growth.  Besides, Pakistan’s economy is primarily based on agriculture, textiles, and services, with the agricultural sector contributing around 22.25 per cent to Pakistan’s GDP, 19.82 per cent coming from the industry. Above all, over half of the economy’s contribution comes from the services sector, making it a stable nation. 

At present, Pakistan is at a critical stage as the country is facing the worst form of economic crisis. It has pushed the country to the brink of bankruptcy and collapse. In addition, Covid-19 has also caused much damage to the already staggering economy. Furthermore, the recent destructive floods in the country have proved the last nail in the coffin, wiping out crops of hundreds of acres of land, and, in turn, increasing the crops’ import. It casts dire consequences on the country’s people’s financial development and social life.  According to the Centre for the Study of Education in an International Context (CEIC), “The Gross Domestic Product (GDP) in Pakistan expanded 1.7 % in June 2023, following a growth of 4.7 % in the previous year.”  To worsen the situation, foreign investors have declined to invest in the country due to prevailing political instability. Pakistan is still looking towards the IMF for its deals and development programs to avoid the worst circumstances.

If the economic crisis remains corrupted, it can curb Pakistan’s social, political, and economic growth. First, the economic crisis can also lead towards bankruptcy. The state’s inability to pay its debt, a devalued currency, and hyperinflation with the grim shortage of basic necessities: food, medicine, and fuel, can shove the country onto the verge of bankruptcy. Many countries in the world have faced such terrible repercussions of financial crisis . To elaborate, the recent collapse of the Sri Lankan economy 2019-2023 is the ruinous repercussion of the economic crisis. Years of mismanagement toppled by the budget and current account deficits, a devalued currency, a substantial sovereign debt, limited foreign reserves, and the sparked months of public protests jolted the already fragile Sri Lankan economy, making it to declare bankruptcy.  This politico-economic collapse is a wake-up call for Pakistan’s government to pay its whopping circular debt and re-structure its economic policies to avoid grave consequences as the situation, if it remains unrectified, can gush it into debt default.  

Moreover, the economic crisis has the potential to escalate into monetary collapse. The root of monetary collapse stems from the lack of faith in the currency’s stability to serve as an effective medium of change. The economic stagnation, price volatility, prolonged periods of hyperinflation, and distrust of government monetary policy and authority exacerbate the situation. History has seen and faced the grim implications of the economic crisis in the form of the Mexican currency collapse, the Russian financial crisis, and Zimbabwe’s monetary collapse.  In particular, Zimbabwe’s monetary collapse has happened due to institutional corruption,   poor economic policy strategies, and a lack of confidence in the government and currency. Moreover, to recover the falling currency, the Reserve Bank of Zimbabwe started printing money, which hyped the inflation rate in the country, increasing monetary uncertainty.  This shows that Pakistan cannot control the monetary collapse spiral if the fiscal policy tends toward increased inflation and the financial crisis remains unchecked for long enough. 

Furthermore, the failure to curb economic crisis could also result in prolonged droughts and food crises. The devastating combination of natural calamities, soaring food prices, and economic shocks can potentially cause an unprecedented food crisis. Many countries around the globe have faced the distressing aftermath of the food crisis.  The food insecurity of Somalia, Afghanistan, Chile, and the Democratic Republic of Congo are glaring examples.   In other words, more than 6 million people are expected to face emergency levels of hunger this year, including 300,000 people facing life-threatening hunger in Somalia. The country is experiencing its longest drought in over 40 years. The concerning situation is fueled by a protracted economic crisis that ranks Somalia last in the 2021 Global Hunger Index. And the country ranks 116th out of 116 countries, pushing it into one of the most complex humanitarian crises in the world.  Such a grim situation could be Pakistan’s fate if the economic crisis continues to accentuate. 

Another implication of economic crisis can manifest in civil war, the war between the factions within the state trying to interfere in the state’s economic and political affairs. For example, situations like economic inequality, shattering public confidence in the government’s institutions, and feelings of economic alienation can escalate into civil unrest in the form of strikes, protest marches, demonstrations, and riots in Pakistan. Many countries in the world have faced the dire consequences of economic crisis.  To illustrate, the outbreak of the bloodiest conflict in the history of America is the repercussion of economic disparity, resulting in the Civil War of 1861-1865 between the Southern slave economy and the Northern economic leviathan.  This was the grave consequence of the economic clash between the parts of America. Such an outrageous situation could be Pakistan’s fate if the economic crisis remains unresolved.

Moreover, if the economic crisis remains unresolved, it can also harm the state’s national security. Owing to the financial crisis, the state can become unable to pay for the weaponry to defend its region and space, which can deter its integrity. There are many developing and underdeveloped countries in the world that are facing the grim ramifications of the economic crisis . To explain, the bankruptcy of Sri Lanka has caused it to cut military strength. Amid the ongoing economic turmoil crippled by the shortage of foreign exchange reserves, the country was unable to pay for fuel, food, and other necessities, which, in turn, made it slash the military by reducing its strength.  Therefore, the worst economic situation can make Pakistan cut its military budget, allowing antagonist elements to come into play. Thus, the harrowing situation can threaten Pakistan’s national security. 

Similarly, the economic dilemma can also become a reason for Pakistan to be declared a failed state. The state’s inability to harness economic and political problems, protect property, and maintain its control over territory can obscure its image, making it a failed state. The situation will make the country vulnerable to external and internal threats, including a variety of riots, a plethora of defiance, and security threats from terrorists and neighbouring states.  In particular, over a decade of civil war has made Syria a failed and collapsed state that has lost control of large parts of its territory and borders. After 2000, it underwent limited economic liberalization, which created competition for the already dwindling public resources and deepened socio-economic inequalities. The war also destroyed the agricultural economy and reduced its per capita income, making it fulfil the indicators of a failed state.  Hence, such a distressing future can become Pakistan’s fate if its economic issues continue to increase.  

In addition, decreased economic stability can also lead to regime overthrow. When a state does not meet the demands of its people and their basic needs and necessities are not fulfilled, aggression is aired in the people, resulting in protests, demonstrations, and riots, which ultimately lead to regime overthrow. Pakistan has already undergone the harsh consequences of the economic crisis . For example, the fall of Ayyub Khan, Pakistan’s former President, was caused mainly by his economic policies that led to inflation, unemployment, and the concentration of wealth in a few hands, causing widespread misery in the populace, thus leading to his downfall. His people nullified his economic achievements, and economic policies were rejected as they were not based on the principles of equality and interdependence.  Thus, history may repeat itself if the current financial problems are not addressed.

To ameliorate the economic crisis, Pakistan should adopt immediate efforts to stabilize the country’s economy and guard against the implications of economic meltdown. First and foremost, Pakistan should re-orient its economy from imports to exports, which will result in an outflow of foreign capital. By strengthening exports and lowering imports, the country can recover from the economic depression. For instance , once suffering from an economic crisis, Finland has successfully overcome it by exporting various industrial and artisan products.  Thus, setting up cottage industries and implementing a long-term and multi-pronged strategy will upgrade firms’ productivity and foster quality and innovation, maximizing export potential. Hence, Pakistan can develop economically by exporting furnished goods through long-term financing facilities. 

Second, the Government of Pakistan should set up small-scale industries to help economic development. With the help of industries, the country can create enormous job opportunities and improve the quality of products. Industries can also help mitigate poverty, unemployment, and other social crimes.  According to the Wollongong Research Centre, the contribution of small-scale sectors to India’s economy has played a more significant role in employment growth, production, and export promotion.  For this, Pakistan should increase funds for the infrastructure and development of industries. Besides this, it should also promote a conducive business environment to spur the growth of competitive industries. In conclusion, Pakistan can alleviate the economic crisis by setting up industries. 

Lastly, public participation in the country’s politics should be encouraged at all levels. Politicians play a significant role in developing and implementing economic policies, and most of the time, politicians misuse their authority for their vested political interests. Hence, the country can stabilize the politico-economic conditions by strengthening civil society and educating citizens who can hold politicians accountable for their wrongdoings.  As Abraham Lincoln said, “We, the people, are rightful masters of Congress and the courts.”  Pakistanis have to come to the forefront to fight for their politico-economic rights by raising their voices for their rights, exemplifying public participation. Thus, public participation and awareness should be increased to nip the economic crisis. 

In a critical diagnosis, the economic crisis can become life-threatening for Pakistan’s international standing. The country currently faces the threat of default and can face dire consequences if the economic situation remains unresolved. Unfortunately, the government is still looking towards the International Monetary Fund (IMF) for a loan instead of building its capacity to avoid the catastrophic repercussions. However, Pakistan can achieve economic growth by investing in its resources and human capital. Therefore, there is a ray of hope that Pakistan will move on the economic development road by adopting specific pragmatic measures. 

In conclusion, the implications of the economic crisis are harrowing and alarming. If the evil remains proliferating, this can lead to grim implications for Pakistan, threatening its sovereignty. For instance, monetary loss, natural disasters, and anarchy, are the overriding consequences of the economic crisis that the country can face. Moreover, security dilemmas from terrorists and neighbouring countries may also become the fate of Pakistan if the evil will not be nipped in the bud. Therefore, to escape its self-inflicted crisis, the government must revamp its sustainable economic policies, set up small-scale industries, and increase public participation.

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