Military rule has invariably proved to be good for Pakistan’s economy. The economy boomed when Field Marshall Ayub Khan was in power. Again the second boom came when Gen. Ziaul Haq was in power.
The latest boom came when Gen. Pervez Musharraf turned the country into the world’s fastest growing economy after China in 2005. The country grew at an unprecedented rate of 8.4 percent. The Karachi Stock Exchange (KSE) remained one of the best stock markets in the world for several consecutive years and still is regarded as the world’s most resilient stock exchange as it continues to grow despite serious political upheavals the country has experienced in the past one year.
Only three years ago the country also featured as one of the Next-11, a list of countries with potential to be the best economies of the future after BRIC (Brazil, Russia, India and China).
Finally, it seemed that prosperity was actually happening even though critics argued that inflation and import bills were spiraling out of hand and the gap between the rich and poor widening.
These criticisms were played down as the necessary evils of a fast growing economy and indeed, when progress takes place, criticisms do not impress much. With foreign investment flowing in at an ever greater pace and volume, the economy seemed to have turned a new leaf. Indeed, the investor confidence has been unwavering and it seemed that the process of growth can never be reversed whoever came to power after Musharraf.
However, the past one year has shown that economics is never separate from politics. There have been over 60 incidents of violence and bomb explosions in the past twelve months, insecurity has risen to the extent that Pakistan is now regarded as the world’s most dangerous place, let alone being good for investment.
The situation was made worse with the assassination of two-time Premier Benazir Bhutto on the eve of the country’s first general elections after 10 years and the ongoing constitutional crisis involving sacking of the Supreme Court Chief Justice by President Musharraf.
Obviously, the foreign investment that the country seemed to be attracting has dried up. Unemployment seems to be on the rise, double-digit inflation seems to be biting almost everyone from middle class downward and the economy seems to be in the crushing grip of power shortages, undermining growth further.
The government has predicted a growth of 6.4 percent for 2008. But given the growing political instability and insecurity, the figure seems to be somewhat over the top.
Power shortages are also playing havoc with the industrial production and domestic investment is disappearing in the face of growing political uncertainty and insecurity and is replaced with capital flight with rich Pakistanis increasingly investing overseas. In these circumstances, rebound looks unlikely at least in the near future.
A recent article titled 10 hottest emerging markets has ranked Pakistan as the No. 1 destination for best return on investment. Indeed, the country offers an excellent and robust market of 160 million people where fundamentals are sound. But one wonders, given the investors’ sensitivity to political stability and Pakistan’s worsening image abroad, such ranking would bring any significant boost to the elusive foreign investment. Pakistan’s economic ordeal seems to have just begun.
— Safdar Jafri is a barrister at law based in Tehran
