The heavy economic cost of the Pakistan Democratic Movement
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There are various channels through which economic losses materialize in a politically uncertain environment. The instability of the political system in a country is associated with lower productive capacities, reduced investment and trade flows.
In Pakistan’s context, uncertainty associated with governance and politics has been seen to adversely affect enterprises in manufacturing industries. This is particularly true for firms trying to lure in foreign capital.
Often in the past, we have seen that dharnas have been associated with a slowdown in economic policy decisions. We saw this several years ago when PTI was out on the streets or when Faizabad was under siege-- and we may well see the same now as the Pakistan Democratic Movement (PDM) gathers momentum.
We argue here that the negative impacts could be unprecedented this time as the economy is reeling under the effects of COVID-19 and a global economic slowdown. Also, if the proceedings of PDM turn violent in the future, it could send negative signals to not only local financial markets but also to long term investment partners including China.
The loss in passive and active investor confidence is usually more difficult to gauge. Furthermore, we have also witnessed donors put their pipeline portfolio on hold until a time when their investment becomes safe.
Unfortunately, this time there are names and stories of generals and judges being openly discussed in public spaces and parliament – a development which ultimately weakens trust in the rule of law and institution building, and gives rise to various forms of polarization within institutions.
Political movements motivated by opposition parties bring treasury benches under immense pressure. We are now witnessing public budgets getting diverted to governments advertising its own achievements, instead of securing scarce resources for human development and other national priorities.
Political movements motivated by opposition parties bring treasury benches under immense pressure. We are now witnessing public budgets getting diverted to governments advertising its own achievements, instead of securing scarce resources for human development and other national priorities.
Dr. Vaqar Ahmed
Any political disturbance in Islamabad provides strength to countries with whom Pakistan is engaged in a war of narratives. This includes not only India but also other countries in the region which stand with our eastern neighbor. This has not only made the process of regional economic integration more difficult to conceive, but also makes it difficult for us to carve out a pathway from the difficult terrains of the Financial Action Task Force and international investment arbitrations that the country finds itself in.
Moving forward, three things are the need of the hour.
First, the PTI government needs to decide whether it wants to focus on the next election and solve basic service delivery issues, or remain entangled in a war of rhetoric with the opposition.
If the desire is to achieve the former, then the government needs to engage with the opposition parties more actively and in a productive manner. This applies to provincial governments as well.
Second, restore investor confidence. Both local and foreign investors are looking towards the government to provide a definite stance on whether it will or will not engage in meaningful dialogue with the PDM in the near future. A clear stance by the government which shows intent to resolve political differences going forward will lift market sentiments.
I was recently informed by a potential investor in construction and real estate that his analysts are unable to find any government documents or medium-term plans which provide standard economic forecasts demonstrating the government’s intent to boost economic growth, trade, and jobs.
Third, there are significant lapses in promised institutional reforms which the government must address. The opposition and the public needs to be shown how, if any, sector or public sector entities have been reformed-- which in turn leads to benefits in terms of improved service delivery. On Twitter, even some civil servants are now mocking the tall promises of their political masters to improve public administration and select institutions such as the Federal Board of Revenue and various public sector enterprises including energy companies.
Several large public sector entities continue to run without full time heads. Many state owned enterprises were taken off the privatization list after a lack of internal consensus. Little is known about the fate of the holding company – Sarmaya-e-Pakistan, which PTI was quick to establish early in its tenure.
Finally, the economic ministries need to enter into a sustained public-private dialogue with businesses. PTI’s relationship with business associations and markets in general has become fragile. The weak understanding regarding what to regulate and how to regulate has resulted in sharp volatilities in food prices – shaking the confidence of the poor on those in power. Regulatory organizations responsible to give a face saving to the Prime Minister and to manage market anomalies have yet to deliver.
– Dr. Vaqar Ahmed is an economist and former civil servant. He tweets @vaqarahmed
