Though Sri Lanka’s political and economic meltdown spans over many years of poor policy choices, the economic situation became dire only in the last few months as international commodity and energy prices surged due to the Russia-Ukraine conflict. During the same time, many nations in the Global South faced extremely challenging economic conditions. Even nations in the Global North have not remained immune from inflationary pressures. From Albania to Zimbabwe, people are protesting against very tough living conditions since inflation is averaging around 9% in emerging and developing economies this year, according to the IMF.
In the case of Pakistan, inflation came out at 21.3% at the end of June, which is the highest in the last 13 years. Where inflation made life extremely difficult for almost everyone, Pakistan’s current account deficit also ran amok in the last few months and for a couple of fateful weeks during April it seemed as if Pakistan’s economy was heading towards a default.
The economic outlook has taken a turn for the better recently. In fact, in a Twitter Space last night, economists agreed that Pakistan’s economy, far from becoming Sri Lanka, has now finally stabilised. Several factors have helped, including this government’s success in inking a Staff-Level Agreement with the IMF that will open up many new avenues for accessing the required financing this year. At the same time, international oil prices have been receding and analysts expect further decreases, especially in the aftermath of President Biden’s visit to the Kingdom of Saudi Arabia.
The Sri Lankan situation, however, presents an interesting case study for Pakistani policymakers because Pakistan also exhibits some of the same variables that drove that island nation toward political and economic anarchy. For starters, Sri Lanka was never able to recover from a devastating civil war that, though it ended in 2009, created permanent divisions. According to analysts, civil wars take place in those political systems that exhibit strong factionalist tendencies, meaning that different political parties start focusing only on ethnic or linguistic concerns. There is a palpable resurgence of factionalism within Pakistan’s political narrative as various political parties, which once had nation-wide appeal, are now increasingly becoming confined to a single province. For this reason, the ongoing riots between two linguistic groups in Pakistan’s biggest city are very concerning, especially as these riots may force different political parties to only focus on identarian issues.
Another reason that drove Sri Lanka towards the present meltdown has to do with that country's semi-presidential system that created a gridlock between the president and the prime minister. Sri Lanka’s executive presidency, in some ways, resembles Pakistan’s hyper-presidency that was created with Article 58 2(b) in 1985. Pakistan’s political parties subsequently removed the president’s power with the passage of the Eighteenth Amendment, a monumental feat. Recently there has been talk of moving to a presidential system in Pakistan. However, experts believe that attempts at reviving the hyper-presidency may lead to conflict and policy inertia.
Finally, the Sri Lankan political system was not able to institutionally contain political instability that eventually led to the present economic meltdown, to quote Ernest Hemingway’s observation on going bankrupt, “gradually, then suddenly.” In a sense, and this is what has been observed from other economic crises like Lebanon, causal arrows travel from politics to economics. A volatile political system will not be able to stabilise an ailing economy. Pakistan’s political system has shown some resilience as though it went through a very serious political crisis, the political and the economic system is still intact. At the end of the day, Pakistan’s political parties have to find democratic solutions to their problems without looking elsewhere for assistance.
Sri Lanka is going through a vicious period in its history. A careful analysis of the various drivers behind the present political and economic meltdown in Sri Lanka promise a very rich learning experience for Pakistani policymakers. This government has been able to stabilise the economy with IMF’s assistance for now, but some worrying developments in Pakistan’s political system need to be monitored.