Is Pakistan's economic collapse imminent?

Pakistan last week suffered a nationwide power outage following a breakdown in its national grid, which left millions of people without electricity. This power failure is an apt representation of the state of the country's faltering economy, which, according to many economic experts, is on the verge of collapse.

"Does Pakistan have a future?" a shopkeeper asked. "I don't know what is happening in this country. We can't afford a proper meal, yet our politicians seem totally unconcerned about our plight," he added.

Long queues of cars can be seen in Pakistan's major cities, including its economic hub Karachi, outside gas stations. There is a shortage of fuel, and whatever gas is available is so costly that ordinary citizens can't afford it.

There are all kinds of other shortages right now in Pakistan. There is no gas to cook a meal in households or to run small factories, and power outages are so frequent that they have crippled the economy.

"The recent power outage paralyzed our lives. We were unable to do our daily chores. It felt like were living in the stone age," Mrs. Waseem, a housewife, told DW in Karachi.

On January 26, the Pakistani rupee fell 9.6% against the dollar, which is the biggest one-day drop in over two decades. The dollar crisis is so severe that hundreds of foreign containers carrying food and medical supplies have been stranded on ports for weeks as authorities do not have the money to make payments.

Prime Minister Shahbaz Sharif's government is now facing a difficult task to convince the International Monetary Fund (IMF)to renew its loan for the country to avoid a default.

Will Pakistan default?

"I think we will get the IMF tranche soon because the government has raised fuel prices, imposed new taxes, and allowed market to decide dollar rates," Salman Shah, Pakistan's former finance minister, told DW.

"The IMF loan will help improve the balance of payment. At the same time, the trance will unleash a storm of inflation that might spike to up to 40-50%. People living below the poverty line, which are around 30 to 40% of the population, will suffer the most," Shah added.

The former finance minister painted a gloomy picture for local businesses. "The cost of doing business will be very high. It might be less damaging for exporters as they receive payments in dollars, but it will badly affect domestic producers, industrial raw materials and food items," Shah said, adding that it will still be better than a default.

"A default would wipe out everything. Although there are similarities between Pakistan and Sri Lanka, Pakistan will only go down the Sri Lankan economic crisis path should it not get the IMF tranche," he underlined. 

Pakistan's political tug-of-war

Pakistan's economy is facing an existential threat, but instead of paying attention to tackling the crisis, the Islamic Republic's politicians are embroiled in a tug-of-war over who would govern the country.

Pakistan has been facing a deep political and constitutional crisis since the ouster of former Prime Minister Imran Khan in April last year. Khan, who was removed from power in a no-confidence vote in parliament, accused the US of orchestrating what he calls the "regime change" in Pakistan, and has taken a confrontational course with the country's incumbent government and powerful military generals.

The former cricket start-turned-politician has been demanding early elections to resolve the political crisis, but many analysts are of the view that Pakistan needs to fix its economy first.

"The country's economic situation is a big mess, and we have run out of money. Holding general elections is a costly affair, and I think Pakistan can't afford it right now," Zia Rehman, an investigative journalist and political analyst, told DW.

"The ideal way forward is that all stake holders, including politicians and the army top brass, sit together and agree on a national consensus government, whose main job should be to fix economy," Rehman said.

Some political observers in Pakistan are of the view that the biggest hindrance to a national dialogue is former premier Khan, whom critics accuse of being "inflexible."

"Khan treats politics as sports, where the sole objective of a sportsman is to defeat the opponent at any cost. Politics don't work like this. Politicians have to engage with everyone, even with their opponents," Ghazi Salahuddin, a senior journalist, told DW.

Security risk

The recent suicide blast at a Peshawar mosque claimed by a splinter group of the banned Tehreek-e-Taliban Pakistan (TTP) organization demonstrates why Pakistan's economic crisis is also a huge security risk for the region.

"Pakistan does not have funds to deal with the security challenge. This poses a great risk to the country's stability," analyst Rehman said.

Experts have often compared Pakistan's economic outlook to that of Sri Lanka's. Last year, massive antigovernment protests erupted across Sri Lanka against the shortage of fuel and price hike. The protesters stormed the parliament and other government buildings, forcing former President Gotabaya Rajapaksa to flee the country.

Pakistani citizens also feel increasingly disillusioned by their ruling elite and could take to the streets.

A new United Nations report states that economic privileges accorded to Pakistan's elite groups, including the corporate sector, feudal landlords, the political class and the country's military, add up to an estimated $17.4 billion (€16 billion), or roughly 6% of its economy.

But unlike Sri Lanka, Pakistan's geopolitical situation, with its proximity with Afghanistan, China, India and Iran, and the presence of countless Islamist militant groups, poses a far greater security risk to the region.

"It is a risk no one in the region can afford," a security official told DW on condition on anonymity.

The international community, knowing the risks of an economic collapse for a nuclear-armed nation, might come to Pakistan's rescue once again, but that would not ease the burden on common citizens. Any such respite for the ruling elite would thus prove to be a temporary solution to Pakistan's structural problems.

Edited by: Wesley Rahn