Caution: danger ahead

THERE are many reasons to be bullish about Pakistan these days, not least the hard-fought stability in the external sector following a few years of near-catastrophic depletion of reserves. But there are now a growing number of reasons to be concerned about the underlying fragility of it all.

The stability is real. There is no doubt about that. A wall of high repayment obligations that first loomed into view back in February 2021 and remained persistently high since then has finally started to come down. They not only met all these obligations and paid down their debt, but also bui­lt reserves through it all — organically — and not borrowed reserves.

The return of stability to Pak­istan’s external sector after the near catastr­ophic volatility of 2021-2023 is one for the history books. The most ferocious inflationary fire in our history was doused. The most precarious foreign exchange reserves position was rebuilt. The most runaway fiscal train wreck was returned to surpl­uses on its primary balance. The state saved itself well.

But in order to do so it wrecked the livelihoods of its own people and nearly choked its own economy to death. Inflows were — in fact still are — diverted ruthlessly to state coffers. Interest rates were hiked to historic highs that were unthinkable even a few years ago.

Taxes weighed like a millstone around the necks of firms and wealth creators. Nobody was allowed to make money or breathe too freely during the years the state was busy rebuilding its accounts. That’s the stability they now tell us is their signature success.

Admittedly, nobody wanted to see the instability persist. And now that it has been surmounted, at least to the extent that inflation no longer ravages the land and reserves no longer teeter on the edge of a cliff, it is worth asking whether it has not returned in some other form. Beneath the floor that feels solid, can we feel powerful forces moving?

With rising discontentment at home leading to the spread of disaffection, the leadership is stuck in a quagmire.

Some of the persistent instability can now be seen in the growing disaffection of populations along the periphery of Pakistan’s heartland of central Punjab and upper Sindh. This is a disturbing trend and must be taken very seriously. To the extent that it has economic roots, the growing struggle that day-to-day life has become for the common citizenry can be said to lie at the heart of it.

A population immersed in deprivation and misery is more amenable to the message of movements and parties that preach rebellion or advocate the politics of disruption and division. None of the parties fomenting rebellion, disruption or division on Pakistan’s periphery these days can be said to be the carrier of progressive or even pro-people politics. But they are all reaping a harvest of hate that has been nurtured and fertilised with deprivation.

The other reason to be concerned is the return of hostilities between Iran and the US, though it remains my view that this will prove to be another short-lived flare-up in what is turning out to be a long-drawn-out, gruelling test of nerves between the two adversaries. It is possible this could drag out for months. The problem for Pakistan is that the leadership here has been heavily invested in reaping the dividends from their diplomatic efforts, and those efforts are taking a long time to bear fruit.

At the heart of the matter is Iran’s unwillingness to let go of the Strait of Hormuz. They had decided very early in this conflict that they would rather see a return to hostilities than bargain on easing their hold on the strait. With the latest flare-up, they have proved this point. Whatever settlement eventually ends this war, it will see Iran in control of the waterway, with full rights on who gets to transit and on what terms. For a moment it seemed that the Trump administration had reconciled itself to this reality. But the flare-up proves otherwise.

With rising discontentment at home leading to the spread of disaffection, the leadership is stuck in a quagmire. The hard-fought stability they tout as their success rescued the state from the throes of its own non-viability. But now instability has returned and is churning up growing numbers of people and leading them to gather around messages that the state would prefer to stamp out with violence. And the much-vaunted peace dividend has been pushed into a more distant future while there are no organic drivers of growth at home.

This is where the danger lies. The stability we have today was purchased with suppressed demand, and suppressed demand cannot be a permanent state of affairs. Sooner or later, the economy, along with the people, must be allowed to breathe again. And the moment that happens, the old appetites will reawaken — for imports, for credit, for dollars.

The state has built no shock absorbers for that moment. Reserves look healthy against the drought of recent years, but measure them against the import bill of an economy growing at even four per cent and the picture changes quickly. And should the flare-up in the Gulf drag on, and oil prices catch fire the way freight and insurance rates already have, the arithmetic changes quicker still.

The rulers face a choice they would rather not acknowledge. They can hold the economy in its induced coma indefinitely, and watch the harvest of hate on the periphery grow richer with each passing season. Or they can release their grip and risk squandering the stability they paid for with the people’s livelihoods.

None of these are palatable. Hence the situation is now best described as a quagmire. What they cannot do is continue to celebrate. The floor beneath their feet may feel solid, yes. But the ground below it is moving.

The writer is a business and economy journalist.

khurram.husain@gmail.com

X: @khurramhusain

Published in Dawn, July 16th, 2026 ...