By Aamir Latif

PAKISTAN (AA) - Pakistan is celebrating its 75th Independence Day on Sunday amid a deepening political crisis, which is taking a further toll on its already struggling economy.

The South Asian country, which along with neighboring India attained independence following the end of British colonial rule in the sub-continent in 1947, is mired in escalating tensions between the government and the opposition, with the latter demanding snap elections which the former has rejected.

With the Pakistani rupee hitting an all-time low against the US dollar, the country's already strained economy is facing skyrocketing inflation, increasing debts and a depreciation of its foreign reserves.

Although the economy has shown signs of a recovery in recent weeks, political and economic analysts nevertheless see the developments as "temporary" if the ongoing political instability continues.

"The ongoing political instability has added fuel to the fire in terms of the economy," said Shahid Hasan Siddiqui, a Karachi-based economist.

"New investments -- both local and foreign -- are shying away along with an increasing flight of capital, including smuggling of dollars," Siddiqui told Anadolu Agency, adding that multinational companies are also adopting a “wait-and-see” approach due to the ongoing political uncertainty.

Supporters of former Prime Minister Imran Khan, who was ousted through a no-confidence vote in April, have threatened to hit the streets again if his demand of early elections is not met within a month.

"If the simmering uncertainty continues, it will further hit the overall state of the economy, as the government won't be able to fully concentrate on the revival of the economy," Siddiqui maintained.

Echoing a similar view, Waqar Masood Khan, Pakistan's former finance secretary, said the political uncertainty shook the country's stock and forex markets, which triggered a wave of speculation.

"Panic" and "speculation" were the key agents behind a 20% devaluation of the rupee, which could have been avoided, Masood told Anadolu Agency.

"It could be gauged by the fact that even with few signs of a recovery, the rupee has regained significant ground against the dollar over the past two weeks," he observed, foreseeing a further increase in the rupee’s value after the release of the long-pending loan tranche by the International Monetary Fund (IMF) in late August.

Khaqan Najeeb, an Islamabad-based economist, said "political certainty is the necessary condition for economic certainty in a country."

Chance for structural reforms

The nation carved out of the subcontinent as a homeland for Muslims began its journey in 1947 amid tensions with India over the issue of Jammu and Kashmir, fears of survival due to economic hardships, the rush of refugees and raging communal riots.

In one of the world's largest displacements so far according to historians, over 6.5 million Muslims from different parts of India migrated to Pakistan.

Now the only Muslim nation with a nuclear arsenal and a population of over 229 million, Pakistan began its voyage with no official secretariat or housing.

Historians believe that despite challenges, the country has accomplished many feats over the past 75 years in science and technology, medicine and sports.

The economy, however, has long been a thorny issue, with economists continuously calling for short- and long-term structural reforms.

The state of the economy further plummeted as terror attacks and suicide bombings in the country inflicted a whopping $140 billion worth of financial and infrastructural losses since 2002, according to official statistics.

A devastating coronavirus pandemic and the Russia-Ukraine war have brought the country's sputtering economy to its knees.

The IMF, which announced a $6-billion bailout package for Islamabad in 2019, has agreed to extend the program until June 2023 with an additional loan of $1 billion.

Siddiqui, for his part, sees the extension as "breathing space" for the government, urging Prime Minister Shehbaz Sharif to "exploit this opportunity and use this time gain for drastic economic reforms, which is the only permanent solution to the country's financial woes."

Unfortunately, he contended, the successive governments have adopted the policy of "borrow loans and spend on luxuries," aside from giving benefits to the country's elite.

Rejecting the notion that new elections can be a solution to the current political and economic instability, Siddiqui said "tensions will very much stay in as no political party would accept the defeat."

Najeeb, a former adviser to the Finance Ministry, opined that the country, in the short term, "must" stay the course of the IMF program, and ensure managing the current account deficit between 1% to 2%0 of the GDP.

This, he added, will ensure that Pakistan's gross finance needs stay manageable till the fiscal year 2023.

"In the medium-term agenda, Pakistan must think about serious energy sector reforms, an effort on privatization, and enhancing the country's agriculture productivity to ensure more import substitutions and incomes for the most vulnerable segments of the society," he said.

Economic instability behind political uncertainty

Kaiser Bengali, a Karachi-based economist, thinks that it is actually economic instability that has led to the ongoing political uncertainty in the country.

"Our focus has been on borrowing loans and meeting beyond-the-income expenses. This has not only tottered the economy but subsequently led to political fissures," Bengali said while speaking to Anadolu Agency.

Calling for slashing the country's colossal import bill, he insisted that there should be a "strict balance" between imports and exports.

Islamabad slashed its monthly import bill to $5 billion in July compared to $7 billion in June, which resulted in a sharp spike in the rupee’s value.