Pakistan's hard-won stability masks growing economic and social fragility
Pakistan has achieved a significant, hard-fought stability in its external sector, a notable accomplishment after years of severe reserve depletion and economic turmoil. The nation successfully met its high repayment obligations, paid down debt, and organically rebuilt foreign exchange reserves, avoiding borrowed reserves. This period of stability, particularly after the volatile years of 2021-2023, saw the nation overcome ferocious inflation, a precarious reserve position, and a fiscal deficit, returning to primary balance surpluses. However, this stability was achieved at a steep cost to the populace and the economy. Inflows were ruthlessly diverted to state coffers, interest rates were hiked to historic highs, and taxes imposed heavy burdens on businesses and wealth creators, stifling economic activity and individual prosperity. The article questions whether this hard-won stability has merely masked a return of underlying fragility. Growing disaffection among populations, particularly on the periphery of central Punjab and upper Sindh, is highlighted as a disturbing trend with economic roots. Deprivation and misery make citizens susceptible to movements advocating rebellion and disruption. The author also points to the renewed hostilities between Iran and the US as a potential external destabilizing factor, noting Pakistan's diplomatic investments that are slow to yield results. The core issue with Iran's stance on the Strait of Hormuz remains unresolved. The current stability, achieved through suppressed demand, is unsustainable. Without shock absorbers, a future economic reopening could quickly deplete reserves, especially if the Gulf conflict escalates and oil prices surge. Pakistan's leadership faces a difficult choice: maintain the induced economic coma and risk further social unrest, or release controls and risk undoing the stability gained at the expense of livelihoods.
Pakistan's recent economic stabilization, while improving external sector metrics like reserves and inflation, has been achieved through stringent fiscal and monetary policies that have suppressed domestic demand and burdened citizens and businesses. This approach, while necessary to avert immediate crisis, has created a precarious situation where the underlying economic and social fragilities have been exacerbated rather than resolved. The suppression of economic activity and the resultant hardship for the population have fostered a climate of disaffection, particularly in peripheral regions, creating fertile ground for disruptive political movements. Externally, geopolitical tensions in the Gulf present a significant risk, potentially disrupting energy markets and exacerbating Pakistan's economic vulnerabilities. The nation's leadership is thus caught between maintaining a fragile, state-induced economic calm that risks further social unrest, and liberalizing the economy, which could quickly deplete hard-won reserves and reignite inflationary pressures. This dilemma highlights a systemic challenge: achieving sustainable growth and stability requires fostering organic economic drivers and inclusive prosperity, rather than relying on demand suppression and state control, especially in an era where geopolitical shocks are increasingly frequent and impactful.
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