By Khurram Husain
Published in Dawn on March 13, 2025
THIS is not how it works. The biggest folly that any wielder of power can fall prey to is to take their own power for granted. It does not work that way. The world is not made of Lego blocks that it can be made, disassembled and remade into whatever shape one fancies. Trying to treat it as such undermines the very roots from which one’s power grows.
The government has some cause to celebrate the fact that it has stabilised the economy, to take one example. This is the fifth time I am seeing a government celebrate the return of stability since 2001, so quite aside from how each of these episodes worked out, it is worth considering the enormous cost that each such cycle of stabilisation brings.
For starters, consider how the cost of each balance-of-payments crisis gets larger each time we go through it. In 2008, for instance, the total foreign exchange reserves plummeted by $7 billion from peak to trough before an IMF programme was initiated and another round of stabilisation launched. The next such fall began in 2011 and by 2013 reserves had fallen by $10bn — and another Fund programme.
Then came the next fall, starting in 2016 and bottoming out in 2018, during which reserves crashed by $10bn again. And the last such fall began in 2021 and bottomed out in 2022, after burning through $13bn, perhaps the single largest and fastest fall of them all.
These figures relate to the state and how its resources get burned during one of these episodes. There is another set of figures we could look at to see how the people fare through all this. This is real wages, which means wages of the working poor and how they are impacted by inflation and devaluation that inevitably accompany each of these episodes.
Each growth spurt is shorter and shallower than the one that came before it.
Work done by Adil Mansoor (my favourite economic writer by far) shows that if nominal wages increase by 10 per cent every year, then it will take until 2030 for the working poor to regain the purchasing power they have lost since 2017. Absorb the implications of this first. A 10pc increase in nominal wages every year for five more years, just to get back to where we were in 2017, is not a minor thing.
Other work on this subject done by Dr Hafeez Pasha over the longer run suggests that the destruction of purchasing power that has happened post 2017, accelerated with a vengeance post-Covid. Even in the worst of years during the preceding decade, real wages did not fall as badly as they have in recent years, meaning the working poor did not see their purchasing power destroyed quite as sharply as it has in the years from 2017 onwards.
As a general rule, democratic government never allowed real wages — which is the measure of daily wages adjusted by inflation — to turn negative. According to Pasha’s work, for example, in the decade from 2008 till 2017, real wages grew by 3pc on average every year. It is a shock, therefore, to see that the purchasing power of the working poor today is worse than it was eight years ago. Rarely have we seen destruction of the incomes of the poor on this scale.
This is the other side of the balance-of-payments crises that we have weathered around five times in the past quarter century. It is the other side of how the stability that successive governments have touted has been earned. Except in the past, it meant a sharp slowdown in the growth of the purchasing power of the working poor. In our time, it means an active and sharp rollback of this purchasing power altogether.
And it doesn’t end there. Each following spurt of growth that follows such a period of stabilisation has been shorter than the one that came before. So if the Musharraf growth boom lasted for around five years before entering its crisis, the Nawaz growth spurt lasted for barely three years, and the growth spurt under Imran Khan lasted for less than two. Each spurt is shorter and shallower than the one that came before.
Each balance-of-payments crisis is larger than the one before. And each time the purchasing power of the working poor is destroyed with greater ferocity. If the inflationary peak following Musharraf’s growth boom was a historic 25pc, in May 2023 the inflationary peak following Imran Khan’s growth spurt hit 38pc.
Of course, in both cases the inflationary spiral began during the time when the two men were in power, but hit a peak by the time they were gone, giving them the space to lay the blame for the inflation on their successors. But it was, in both cases, the reckless and unsustainable growth strategies they followed that led to the breakout of inflation.
Each time stability comes, the government of the day celebrates it as a signature success, and yes, it takes a lot to bring about this stability. But we cannot keep repeating this cycle. Because each time we go through it, the ties that bind the ruler and ruled suffer irreparable damage. Consider the malignant behaviours that are kicked into motion in an economy characterised by such booms and busts.
Investors look for quick and outsized returns because they know in their bones that good times never last in Pakistan. The poor look for rackets, some turn to street crime, others spread themselves out thin to operate multiple small trades in order to diversify their sources of income or supplement them. And yes, in some cases they look to flee to greener shores.
Survival strategies unleashed in such an economy run contrary to what is required for healthy sustainable growth that raises incomes as well as productivity.
The rulers need to understand that their connection with the common citizenry is now so frayed, levels of trust so eroded, faith in the institutions of the country so low, that resorting to a heavy hand to gain obedience should be avoided and efforts to build consensus within their ranks given top priority.
