Political economics


Ongoing political protests and marches organized by opposition political parties and interest groups against the government have sparked a new wave of demonstrations and rallies, with the government’s public protests also launching a movement to regain the support of the government. public.

In recent years, political protests and marches have become a regular feature of Pakistan’s political landscape. The right to protest is seen as a sign of a healthy democracy so that people can raise their voices to demand their rights. However, at the same time, these protests are also associated with the closure of economic activities, violence and the loss of private and public property.

It is essential to study the economic consequences of these demonstrations, marches and sit-downs. What are the economic costs of such protests? A current of literature establishes a negative impact of political instability on growth (Matta et al, 2021). Shonchoy and Tsubota (2016) show that manufacturing sector costs increase by about 1.17% due to disruption caused by strikes in Bangladesh. Shrestha and Chaudhary (2014) documented that the average direct cost of general strikes was 1.4% of Nepal’s GDP. These strikes reduced GDP growth rates by 0.6 percentage points to 2.2 percentage points. Rahman (2014) shows that a ten-day strike resulted, on average, in a loss of 3% of GDP per year in Bangladesh.

Matta et al (2021) show that real GDP per capita is, on average, 4.3% lower than its counterfactual due to political instability and mass civil protests in the year of the event . The study further shows that Pakistan faces a significant loss of 2.7% of GDP per capita due to massive political instability with mass civil protests in the year of the event. Moreover, this study further indicates that real GDP per capita has not fully recovered its initial output loss.

Ahsan and Iqbal (2015) find that a seven-day political strike reduces a firm’s exports by 4.5% in Bangladesh. In addition, protests and strikes greatly affect small exports and exporters, producing generic products at low prices.

Piotr et al (2020) show that a general strike is detrimental to stock values ​​and led to a 6.11% drop in dollar-denominated stock indices of affected countries. A statistically significant increase in risk also accompanies this event. These statistics imply that general strikes have serious consequences for stock market investors. These losses are equivalent to approximately 0.4% of GDP per strike day.

In light of global evidence, especially from neighboring countries like Nepal, Bangladesh and India, we can assume that strikes and political protests would cost up to 3% of GDP per year. This direct economic loss is three times greater than total social protection expenditure (only 1% of GDP allocated to social protection). The economic loss highlights the consequences for the poor. Pakistan can easily reduce poverty and hunger if the same amount (loss in protests) is invested in the poor.

Pakistan is a country with great prospects in terms of development. But today it is one of the slowest growing countries even in the South Asian region. IMF World Economic Outlook (2022) shows projected GDP growth for Pakistan at 4% compared to India (9%), Bangladesh (6.5%), Maldives (13 .2%) and Nepal (4.4%) in 2022.

Pakistan ranks in the fifth percentile for political stability compared to South Asia’s 30th percentile, where 0 is the least desirable rank and 100 is the most desirable rank, according to Governance Indicator data. World Bank 2022. While Bhutan ranks at the 85th percentile, India at the 17th percentile, Sri Lanka at the 45th percentile and Bangladesh at the 16th percentile on the Political Stability Index.

If we can somehow restore political stability, the economic potentials – ranging from human capital to natural resources – can quickly change the country’s economic outlook. On the other hand, the continuous strikes, demonstrations and sit-downs are further worsening the economy.

Pakistan faces chronic problems such as low economic growth with high triple deficit, poverty, hunger, poor quality human capital, terrorism and weak governance structure. Unwanted strikes and similar events have wasted valuable time for politicians and other experts, including the media. Political parties should therefore consider the costs of demonstrations and strikes before initiating these activities.

We can spend the same time discussing the real socio-economic challenges to improving the country’s economic prosperity. Political parties must invest time and energy in finding alternatives to political strikes in order to lead the country towards prosperity and growth. The government and relevant authorities should also review their approach to handling political party protests and strikes. The revised policy process requires developing a culture to deal with an issue quickly and honestly.

Economic development depends not only on economic factors but also on non-economic aspects such as institutions, political systems and values. The political system plays a fundamental role in determining the pace and direction of economic development.

A responsible political system is committed to creating an enabling environment. It facilitates investments to stimulate economic activities and hence economic growth. In such a situation, citizens have less incentive to participate in political activities since they engage in economic activities evident in the developed world. People involved in economic activities do not like these political movements and consider them unnecessary evils. The people want political parties to work for the creation of alternative and peaceful action-oriented programs.

The author is an associate professor at the Pakistan Institute of Development Economics (PIDE).

Email: dr.iqbaln@gmail.com


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