THERE is a political battle underway in Pakistan and it is being fought on multiple fronts, with multiple strategies involving multiple players. At stake is the very future of politics in this country. And driving the whole affair is an economy that has wallowed in stagnation for too long now.

Start with the economy, then follow the ripples outward as they travel through the political system. Back in the summer of 2022 the economy was overheating, a process that had begun a year earlier and was admitted to by the PTI’s Shaukat Tarin in public remarks made in the second half of 2021. Inflation was skyrocketing and foreign exchange reserves had hit near default levels by June 2022. The air was thick with doomsday scenarios if Pakistan should stumble into what people were describing as a ‘Sri Lanka-type situation’. Turbo-charged anxiety was surging from the economy out into the wider society.

Pakistan pulled back from the brink in August 2022 with a last-minute Fund programme, but lost the thread once again when Ishaq Dar came in as finance minister and deviated from the programme’s requirements. Once again, the country veered towards a catastrophic default until yet another emergency Fund programme in July 2023 pulled it back one more time. Two last-minute rescues in one year must be a record.

Since July 2023, the economy has been stable, with inflation extinguished and foreign exchange reserves rising steadily, from less than one month of import cover to around two-and-a-half months by now. But there the good news ended. All through 2024 and 2025, the economy found a stable footing and the anxiety slowly drained out. But this came at a cost. With job creation halted and growth killed, the economy began to fill up with pressure of another kind: desperation.

There are too many players now, and not enough space in the game for all of them.

Stagnation can stabilise some parts of an economy, like prices and import demand. But stagnation also drives up desperation as owners of capital watch the value of their assets and cash flows plummet, as middle classes find their purchasing power burned away and the working poor find daily life turn into a grinding struggle since wages are the last to recover from episodes of high inflation in Pakistan.

The desperation is fuelled further by the state’s massive requirement for resources that grows during periods of stabilisation. Taxes rise, expenditures are cut and the central bank mops up all dollar liquidity the system can generate to build its foreign currency buffers. The demand for resources falls heavily on capital, as a demand for taxes, high interest rates and liquidity shortages in foreign currency markets start to grip economic policy. Periods of growth booms that usually precede such severe downturns are periods when capital enjoys outsize returns. Periods of bust occur when the state comes bearing the bill.

The churn in the political system mirrors these developments. The first fault line along which systemic stress develops is the civil vs military one. Both of these wings of the state feel the resource crunch hard during these times. The crunch comes from different directions. Servants of the state need to be compensated for their loss of purchasing power due to the inflationary fire. Continuing investments in state assets, from infrastructure to arms procurement and everything in between, need to be paid for. The civilians feel the heat from society because they are answerable to the electorate, so they search for ways to transfer state resources to their constituents.

The business community lobbies hard to reduce the burden the state places upon them during these periods. Taxes and interest rates are routinely in focus, but they also get creative in coming up with new ‘incentives’ for themselves. And along the way, they find ways to play one wing of the state against the other in an effort to advance their interests.

This is how desperation below feeds tension above. Mistrust, suspicion and disappointment among the ruling elites of the country grows. Perceptions take hold that the government has failed, that it is incompetent, that the ruling party is self-serving, and so on. As the ruling party tries to stave off these attacks, its focus on the ongoing stabilisation effort falters, and desperation for growth begins to assert itself.

Pakistan is going through this cycle one more time these days, but with some slight modifications. The centre has fallen to non-democratic forces as the hybrid experiment launched in 2018 has ramped up its presence and taken over more and more space in executive decision-making from 2024 onwards. The democratic forces have retreated to their fortresses in the provinces. Each of the major political parties in the country controls one province, whose revenue stream keeps them alive and in the game. And each has made that province their base of operations, to first secure their place within the system, and then launch their bid to retake what they believe is their rightful place in the centre. It’s what I call the ‘Great Retreat’.

Meanwhile, with stabilisation now well into its third year, the demand for resources in the centre is proving relentless and the non-democratic forces are in pursuit. They are being egged on by those who can only build a future in public life for themselves with the total erasure of the democratic forces from power. The demand to roll back the NFC Award and break up the provinces feeds on the tension bred along the civil-military fault line as economic stabilisation now begins to bite.

With no strategy on the horizon to break out of stabilisation mode, the system will increasingly turn on itself, and a reckoning of some sort will have to take place. There are too many players now, and not enough space in the game for all of them. Absent a major external bailout, the third year of economic stabilisation will see a rising arc of political instability in the country.

The writer is a business and economy journalist.

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X: @khurramhusain

Published in Dawn, December 11th, 2025