New Government’s Recipe: Navigating Political & Economic Turmoil

Protestors holding anti-inflation posters.
Image Credits: Shahzaib Akber/EPA

Over 220 million people call Pakistan their home, which is currently at an inflection point. Pakistan endured a terrible period in 2023, due to significant economic and political challenges. This included a near-financial default, resulting in a US$3 billion bailout program from the International Monetary Fund for the salvage of economy. Pakistan with a new administration in office after the recent elections, will have to deal with a myriad of political and economic issues. Once again it is facing significant uncertainties over its future economic direction and leadership. This article examines the background that created these problems, identifies the main challenges that the new Government has to confront, and looks at possible ways to overcome these.

A Legacy of Economic Strain

There is a long history to Pakistan’s economic problems. A substantial debt load has been accumulated in decades of political instability, corruption, and dependence on foreign borrowing. Pakistan has an ever-increasing amount of foreign debt, which the International Monetary Fund (IMF) puts at more than US $120 billion. “Pakistan’s economic situation is quite precarious,” said an IMF spokeswoman during a recent press conference. The currency is losing value, inflation is on the rise, and foreign exchange reserves are decreasing as a result of unstable scenario.


People living in Pakistan are feeling the effects of the economic pressure. A lot of people are finding it difficult to make ends meet since the prices of food and gas have soared really high. “Our top priority is to alleviate the suffering of the common man”, Prime Minister Shahbaz Sharif reiterated the resolve in his maiden speech as PM.

Our top priority is to alleviate the suffering of the common man.

Prime Minister Shahbaz Sharif

Other than the foreign debt, one more issue that welcomes the new Government is the decline in export industry of Pakistan. Textile is Pakistan’s main export but mills/ plants are closed, due to rising electricity prices. The severe depreciation of the Pakistani rupee (PKR) has exacerbated the economic predicament. From assurances to emerge as the world’s best-performing currency in October 2022 to a record low in February 2023, the devaluation has far-reaching consequences, affecting basic imports like fuel, edible oil, and beans. In such circumstances, exports earing is unlikely to increase but rescheduling the foreign debt payment will become an urgent task for newly formed Government.   

Agriculture has decreased from 4.3% to 1.6% between 2022 and 2023. Manufacturing fell from 10.9% to minus 3.9%. The Commodity Production Sector fell from 5.4% to minus 0.5%. The Service Sector fell 6.6% to 0.9%. Total investments (at current prices) in the country fell from 29.0% to 10.2%. National savings as a proportion of GDP rose from 11.1% to 12.6%. Foreign savings fell from 4.7% to 1.0%, while domestic savings rose from 4.3% to 6.3% during the same time.


Furthermore, Pakistan’s greylisting by the Financial Action Task Force (FATF) had significant economic consequences, with estimated GDP losses of US$38 billion since 2008. While the country’s removal off the list in October 2022 gave some comfort, however, the need for strong anti-money laundering and counter-terrorism funding policies.

Image Credits:  Akhtar Soomro/Reuters

Political Turmoil: A Double-Edged Sword

The present political atmosphere is making matters worse for the economy. Various political factions in Pakistan have long fought for control of the country. A coalition Government, including members from many ideologically distinct parties, has been created as a consequence of the recent elections. Coalitions like this help get more people’s voices heard, but they also increase the likelihood of political bickering and paralysis by analysis. A further complication is that the myopic and former Prime Minister Imran Khan. Following his ouster in a vote of no confidence last year, Khan has become an outspoken opponent of the current administration. There is now more political uncertainty as a result of Khan’s rising popularity, which might make it harder for the nascent Government to enact critical changes.
Also Read: SIFC Driving Economic Transformation

Pakistan has problems outside of its own borders as well. The already precarious economic situation in Pakistan has taken a nosedive due to the worldwide increase in the cost of gasoline and food caused by the protracted conflict in Ukraine. Furthermore, the new leadership is under increased pressure to produce results promptly due to the current trend in worldwide media coverage that favors Khan’s leadership.

Navigating the Labyrinth: Challenges and Potential Solutions for Pakistan’s New Government

Once need to into the specifics and potential solutions for navigating this challenging landscape. Immediate priority for the incoming administration is to restore economic stability. Striking a balance between encouraging growth and enacting austerity measures remain crucial. Although controversial, broadening the tax base is essential. If the country wants more money from the International Monetary Fund, they have to expand the tax net. However, there may be popular opposition to tax increases, while inflation is on the rise.

Another major obstacle is Pakistan’s rapidly increasing debt. In order to get some breathing space, it may be required to renegotiate loan conditions with the International Monetary Fund and other creditors. Reducing the budget imbalance may also be achieved by limiting Government expenditure and giving priority to critical services. A combination of strategies is needed to tackle inflation. To stabilize prices, it is necessary to encourage local production of necessary items, streamline supply networks, and punish price gouging. “Pakistan’s economic situation is a ticking time bomb” warned an IMF spokesperson recently.

Pakistan’s economic situation is a ticking time bomb.

There is a complicated political terrain that the incoming Government must traverse. In order to make good decisions, the coalition must first build consensus. To guarantee that all parties prioritize national interests, it will be crucial to have open communication and a common goal. Government’ confidence may be increased via the promotion of openness and the strengthening of democratic institutions. An unusual obstacle is the cult following of former Prime Minister Imran Khan. Those, who support Khan are turned off whenever he is criticized. While successfully addressing Khan’s populist rhetoric, the incoming leadership must address his legitimate concerns. The key to winning back the confidence of the people of Pakistan is to concentrate on providing tangible outcomes that enhance the lives of average Pakistanis.

The geopolitical circumstances that Pakistan’s foreign policy must traverse remain complicated. The newly established Government should think about broadening its economic alliances, while keeping ties with China robust. One way to lessen reliance on any one country is to forge closer relationships with regional actors and investigate untapped markets. There is no denying the magnitude of the difficulties that the new leadership of Pakistan faces. Nonetheless, one should use caution, while expressing hope. The country is known for its resilient people, who are also quite enterprising. Pakistan may start to traverse this difficult phase and come out stronger if the Government can establish reasonable economic policies, promote political stability, and meet the demands of the people.

The opinions shared in this article reflect the author’s personal views and do not necessarily align with the institution’s official stance.

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Sara Nazir is an Islamabad-based researcher with a background in Strategic Studies & area of interest is non-traditional warfare. She can be reached on saranazeer2@gmail.com & @SaraNazir13 (on X).

Sara Nazir

Sara Nazir is an Islamabad-based researcher with a background in Strategic Studies & area of interest is non-traditional warfare. She can be reached on saranazeer2@gmail.com & @SaraNazir13 (on X).

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