On Tuesday, the KSE-100 Index fell more than 1,350 points to close at little over 38,300, engulfing the Pakistan Stock Exchange (PSX) in severe economic uncertainty and gloomy market sentiment. The KSE-100 Index was trading near 38,342.21 at the the close, down 1,378.54 points or 3.47%. The benchmark index has not been at this point in 30 months. Although trading got off to a good start, selling pressure soon took hold of the market and dragged equities lower. Furthermore, the value has decreased as a result of the program’s IMF uncertainty. One of the most important signs of an economy’s collapse is the decline in share value. If Pakistan is on the verge of a stock market crash, it would be best if everyone was ready for it. Stock market crashes send economies into protracted periods of a deep recession.
Since the government and IMF have been in talks for several weeks but have not yet reached an agreement, Pakistan’s stock market has been under pressure. With less than one month of import coverage, the delay coincides with declining foreign exchange reserves that have fallen to a level not seen in more than nine years. The rupee’s decline against the US dollar resumed for the 20th session in a row on the economic front to close at 228.66. Economic slumps and collapses have always been sparked by political unrest. States with weak political institutions experience economic hardship all across the world. Acemoglu and Robinson attribute poor economic institutions too weak political institutions in their book Why Nations Fail. Pakistan is the ideal illustration of a failing state right now, both politically and economically.
Pakistan was created 75 years ago, but it has yet to establish a firm political foundation. The military-bureaucratic oligarchy and the phoney democracy have contributed to the current status of the nation. People no longer believe in the system, and rent-seeking is on the rise. The majority of this can be attributed to the political unrest the nation has experienced since the PTI government was overthrown earlier this year.
When there is political unrest, firms and investors become leerier of investment prospects, which lowers capital inflows into the nation. As a result, foreign currency reserves may decrease and access to foreign credit may be restricted. Businesses are unable to grow current activities or invest in new ones without access to funding, which can lead to a slump in the economy. As more people decide to save their money instead of spending it, this may also result in more unemployment and a decline in consumer expenditure.
When political unrest is coupled with other issues Pakistan is currently experiencing, including a depreciating currency, rising inflation, or diminishing export income, the long-term implications on economic stability can be particularly detrimental. Significant political unrest may prevent certain nations from receiving foreign loans or investments for development projects, further disrupting their economy and lowering their capacity to bounce back from shocks.
Economic stability is ultimately impossible without political stability. Economic instability is frequently a result of political unrest, and this can have catastrophic effects on nations all over the world. For this reason, it is crucial that political parties put aside their immediate concerns and cooperate to find a remedy for the impending economic catastrophe in Pakistan. Additionally, the government ought to stop changing many of the indicators according to its policies.
The government must take action to make sure that crucial institutions are preserved and continue to operate effectively if Pakistan is to maintain its economic stability throughout periods of political unrest. Additionally, governments should support structural reforms, engage in infrastructure projects, and offer clear instructions on fiscal policies to guarantee that investors have faith in their economy. To help during this crisis, it is also critical that the government cooperate with the International Monetary Fund.
