Runaway inequality

Pakistan is among the countries most vulnerable to climate change, already passing through the shocks and after-shocks of the Covid-19 pandemic and the Russia-Ukraine war. Undoubtedly, the creation of the ‘Loss and Damage’ Fund as part of climate justice at COP27 was a great success for Pakistan.

But Pakistan’s credit default swap (CDS) risk and political instability across the country have negatively affected investment climate, resulting in a huge gap between the rich and the poor. These cracks have started breaking apart the very fabric of our society, as runaway inequality plays havoc across Pakistan.

The life of an ordinary Pakistani is marred with countless challenges — from hunger to health hazards. Education is no more a right, but a privilege. This state of affairs is deplorable. Terrorism and violence has once again started threatening peace and security in the country. Foreign direct investment (FDI) is at the lowest levels, almost nil. The economy is facing a default-like situation. Inflation and price hikes have made lives of the poor miserable. All these factors are contributing to the prevailing poverty and inequality in the country.

The economy is in a bad shape; unemployment is rampant. No industry is on the path towards growth and no investment opportunities are available in the country. The majority are living from hand to mouth, and this is one of the prime reasons for an increase in the crime rate. There has been an increase in the number of double homicide cases. This is an unfortunate situation, giving rise to hopelessness and posing a threat to the viability of the state.

Pakistan is one of the lowest ranked countries in the Human Development Index (HDI). Different indicators show that the country faces the worst form of inequality and inefficiency. Illiteracy is one of the main causes of poverty. The country’s education sector suffers due to multiple factors including, but not limited to, lack of funds. This happens because Pakistan’s security situation consumes most of its annual budget after debt payments. Healthcare is the second most affected and neglected sector, suffering due to budgetary constraints. That the HDI receives negligible attention is one of the reasons for rising poverty, inequality and inefficiency.

There are also external and internal factors that disturb peace and security in the country. Afghanistan’s security situation has always had a negative impact on the overall investment climate in the country, as no investor would be interested in investing in a country where the law-and-order situation is this bad. First, it was the erstwhile USSR in 1979 and then the US in 2001 that invaded Afghanistan and somehow Pakistan got involved in the conflicts, resulting in the deteriorating peace and security situation in the country. Foreign direct investment (FDI) was the direct casualty of these misadventures as terror outfits wreaked havoc across Pakistan. Although the government is trying to give a measured response to such violence and terrorist activities, there seems to be no end to it.

Pakistan was badly hit by the Covid-19-induced recession in the world. Although the several decisions by former prime minister Imran Khan saved people from some of the worst effects of the Covid-19 pandemic, we could not save the country from extreme poverty and runaway inequality. The country was reliant on loans, SDRs (special drawing rights by the IMF) and grants with no investment, which did not support the cause of the economy.

An economy grows if there is investment in infrastructure, industry and services, competing the international market with impressive exports. Even though Covid-19 restricted the space for investment and resulted in slow growth across the world, Pakistan was lucky to enhance its exports during this time. But the overall drop in economic activities at the international level adversely affected Pakistan.

The Ukraine war has become another reason for the world to be worried about. Food insecurity and energy crisis are the real outcome of this war. Pakistan is no stranger to these crises; it is facing a lot of difficulties to get LNG from the international market. It is now expecting a possible deal with Russia for oil and gas in January/February to meet its energy requirements at affordable prices. But the main issue is how to save the poor from the brunt of high prices as our economic problems have touched the highest levels. Pakistan is on the verge of default, as reflected by the analysis of some economists.

The recent floods in Sindh and Balochistan owing to climate change have resulted in economic losses as well. The poor were the most affected in this calamity. People in Sindh are still suffering from the worst effects of the floods. The total economic losses to the already shattered economy are estimated at more than $30 billion, which could not be compensated by the announcements of the loss and damage fund in COP27. However if asked what to do next, there is no answer as well.

Poverty, inequality, unemployment and hunger are further adding numbers to the already poor segment of society. The government apparently has no solid plans to address rising poverty, except to give some money to the poor through social protection programmes such as the Benazir Income Support Programme (BISP). They are busy in securing more multilateral and bilateral loans to help avoid sovereign default. Political uncertainty is further adding confusion to the already chaotic situation.

There seems to be no long-term planning or any consensus among the top political leadership to move forward in the right direction to address the most urgent issue of the economy. The leaders of all major political parties must sit down and sign a charter of economy with a clear vision to get out of this economic and political mess. The poor of this country have been hit the hardest by the ongoing economic mismanagement and political rifts, posing an existential threat to the state.

The writer is a former additional secretary and can be reached at: hassanbaig2009@gmail.com