"Political Stability is mandatory for economic prosperity in Pakistan". Elaborate.

Introduction

Confucius taught in the Analects (12.7) that a state needs sufficient food, sufficient weapons and the confidence of the people, and that of these confidence matters most: "If the people have no faith in their rulers, there is no standing for the state." Economic prosperity, too, rests on confidence: investors, savers, lenders and workers must trust that the rules will not change overnight. In Pakistan, frequent changes of government, street agitation, disputed elections and confrontations between institutions have repeatedly shattered that trust. History shows that the country's best economic years came during periods of relative stability, while political crises have often coincided with economic collapse. Political stability is therefore not a luxury but a precondition for prosperity.

Overview

Pakistan's economy has followed a stop-go cycle. Growth was strong in the 1960s, in parts of the 1980s and 2000s, and around 2016-18, but each boom ended in a balance-of-payments crisis, often coinciding with political turmoil. The PTI sit-in of 2014 delayed President Xi Jinping's planned visit and the launch of CPEC; the political crisis of 2022 coincided with a collapse in reserves, a sharp fall in the rupee and fears of default. International research confirms the link: an IMF study by Ari Aisen and Francisco Veiga (Working Paper 11/12, 2011) covering 169 countries found that higher political instability is associated with significantly lower GDP growth, mainly through lower productivity and investment.

How political instability damages the economy

1. Policy reversals.

New governments often reverse the economic decisions of their predecessors, from privatisation and tariffs to development projects, making long-term planning impossible. Investors cannot plan for decades if policies change every few years. (Reference: Ishrat Husain, Governing the Ungovernable, Oxford University Press, 2018; Pakistan Business Council, Charter of Economy proposals.)

2. Loss of investor confidence.

Foreign direct investment has remained low, at around $2 billion a year in most recent years, partly because of political uncertainty. Domestic businesses also delay investment during crises. (Reference: State Bank of Pakistan, foreign direct investment data; Overseas Investors Chamber of Commerce and Industry, Perception and Business Confidence Surveys.)

3. Currency and market turmoil.

Political shocks trigger capital flight, rupee depreciation and falls in the stock market. During the crisis of 2022-23, the rupee lost much of its value and the Pakistan Stock Exchange fell sharply. (Reference: State Bank of Pakistan, exchange rate data; Pakistan Stock Exchange, KSE-100 index history.)

4. Delayed projects.

The 2014 sit-in forced the postponement of President Xi Jinping's visit, delaying the signing of CPEC agreements until April 2015, and political disputes have repeatedly stalled dams and other projects. (Reference: Ministry of Foreign Affairs of Pakistan statements, September 2014; Long Term Plan for CPEC (2017-2030).)

5. Short-termism and populism.

Governments facing threats to their survival prefer quick, popular measures such as subsidies and fixed fuel prices over painful reforms, which widen deficits. The fuel subsidy of early 2022 is an example. (Reference: IMF, Pakistan staff reports, 2022; Ministry of Finance, Monthly Economic Outlook, 2022.)

6. Weak tax reform.

Unstable governments avoid confronting powerful lobbies, so the tax-to-GDP ratio has remained around 10 percent, one of the lowest in the world, leaving the state dependent on borrowing. (Reference: Federal Board of Revenue, Year Book 2022-23; World Bank, Pakistan Development Update, 2023.)

7. Damaged credit ratings and lender trust.

Rating agencies cite political risk in their decisions; Moody's and Fitch downgraded Pakistan in 2022-23 during the political and economic crisis, raising borrowing costs. (Reference: Moody's Investors Service, rating actions on Pakistan, October 2022 and February 2023; Fitch Ratings, rating actions, 2022-2023.)

8. Brain drain and capital flight.

Uncertainty pushes skilled professionals abroad and encourages the wealthy to move savings into dollars, property or foreign assets rather than productive investment. More than 800,000 Pakistanis registered for overseas employment in 2022. (Reference: Bureau of Emigration and Overseas Employment, annual statistics, 2022; State Bank of Pakistan, data on foreign currency deposits.)

How political stability can deliver prosperity

1. A charter of economy.

All major parties should agree on a binding set of economic policies, covering taxation, energy, privatisation and the fiscal framework, that no government would reverse. (Reference: Charter of Democracy, 2006; Pakistan Business Council, Charter of Economy proposals.)

2. Long-term planning.

Stability allows long-term plans such as Vision 2025 and the 13th Five-Year Plan (2024-29) to be implemented across governments. (Reference: Planning Commission, Pakistan Vision 2025; Planning Commission, 13th Five-Year Plan 2024-29.)

3. Institutional continuity.

An independent central bank, an autonomous tax authority and regulators insulated from political pressure give investors confidence. The State Bank of Pakistan (Amendment) Act 2022 was a step towards this. (Reference: State Bank of Pakistan (Amendment) Act 2022.)

4. Regional peace and trade.

Stable governments can pursue peaceful relations and trade with neighbours, including Central Asia through Afghanistan, opening new markets. (Reference: National Security Policy of Pakistan 2022-2026, section on geo-economics.)

5. Investor-friendly predictability.

Consistent rules, quick dispute resolution and protection of contracts would attract investment, as the SIFC seeks to provide through a single window. (Reference: Board of Investment (Amendment) Act 2023; World Bank, Doing Business 2020.)

6. Structural reforms.

Reforms of state-owned enterprises, the power sector and taxation need years to bear fruit and are possible only when governments are secure. (Reference: IMF, Pakistan Extended Fund Facility staff report, 2024.)

7. Human capital investment.

Stable governments can invest consistently in education, health and skills, which drive long-term growth. (Reference: UNDP, Pakistan National Human Development Report 2017; World Bank, Human Capital Index 2020.)

8. Lessons from Asia.

South Korea, Malaysia, China, Vietnam and Bangladesh achieved rapid growth during long periods of policy continuity, showing that stability, not any particular system, is the common factor. (Reference: World Bank, The East Asian Miracle: Economic Growth and Public Policy, 1993.)

Conclusion

In his address at the opening of the State Bank of Pakistan on 1 July 1948, Quaid-i-Azam urged the nation to build an economic system based on "equality of manhood and social justice." Such a system cannot be built amid constant political turmoil. Pakistan's experience shows that political crises bring policy reversals, falling investment, currency collapse and dependence on lenders, while periods of stability bring growth. A charter of economy, institutional continuity and respect for constitutional processes would give Pakistan the stability it needs. Political stability is not sufficient for prosperity, but without it prosperity is impossible.