Security issues are a paramount concern in international relations, as they have a profound impact on the stability and prosperity of nations and the global community. Traditional security threats, such as interstate wars continue to pose a risk, while non-traditional security challenges, like terrorism cyberattacks, climate changes and economic instability have emerged as significant concerns. This article is all about one of the most significant issue: “economic instability in Pakistan”. Economy refers to the production, distribution and consumption of goods and services within a society or region. The economy can be a circular flow of income and expenditures involving households, businesses, government, and markets. In such context, economy is a vital aspect of a nation’s well-being, as it affects people’s standard of living, poverty level and overall quality of life. There are several factors for measuring the health of an economy like GDP, GNP, NDP, GNI, per capita income, inflation rate, interest rate, CPI, PPI etc.
Pakistan’s economy is facing a crisis due to political instability, terrorism, debt obligations, balance of payment, low productivity, floods, currency devaluations, low foreign exchange reserves and high interest rates.
In Pakistan has led to economic instability, as frequent changes in government and ongoing political tensions have created an uncertain business environment, decreasing foreign investments. Political instability has resulted in lack of consistent policies, decline in investor confidence, unemployment and decrease of tourism a significant source of revenue for Pakistan.
High inflation reduces the value of money, making goods and services more expensive, and reducing consumer’s purchasing power. In april 2024 the inflation rate was 17.3% which is highest compared to India, Bangladesh, China and so many other Asian countries.
High interest rate cause currency devaluation (interest rate parity theory), although this is
done intentionally to direct the money supply towards the government, it can have negative consequences for the economy. The benchmark interest rate in Pakistan was last recorded at 22%, and it’s the second last highest rate in Asia.
External borrowings is also one of the factor of instability , Pakistan holds external debts and liabilities of 126.3$ billions. So the country spends around 40% of its federal budget on debt servicing , which causes a budget deficit and then that deficit portion is again fulfilled by further borrowings. Balance of payments is the record of financial transactions made by the residents of a country. Pakistan has faced significant challenges in the FY-22 with the
deficit in both current accounts and trade of 17.4$ billions and 45$ billions .
Economic instability in Pakistan is a complex and multifaceted issue that has plagued the country for decades. To address these challenges, Pakistan needs to implement a comprehensive economic reform agenda and requires a collective efforts from all stakeholders, including government, civils, society and individuals.
Author: Urooj Arif
BS IR
Islamabad
