Political instability refers to a state of uncertainty and unpredictability in the governance of a country. Frequent changes in leadership, power struggles, and a lack of effective government characterize it. Political instability can have a detrimental effect on a country’s economy, leading to a decline in investment, trade, and economic growth. It can also result in inflation, currency devaluation, poverty, and unemployment. Deterioration of the business environment and investment, the decline in trade and tourism, and the reduction of access to basic services and social welfare are also the results.
II. Historical Examples of Political Instability Leading to the Economic Downfall
Political instability is negatively impacting Pakistan’s economy right now. It is leading to a decline in economic growth, a drop in foreign investment, and a rise in inflation and unemployment. Since last year in April 2022, Pakistan is going through the worst political crisis which in turn brought an economic crisis. Inflation has reached 24% which is touching its skies. There are some other historical examples worldwide that are worth noting.
Venezuela has been plagued by political instability and economic turmoil for several years. The country has been in a state of political crisis since the late 1990s. This is marked by frequent changes in leadership and power struggles between the government and the opposition. This political instability has had a severe impact on the country’s economy. It has led to hyperinflation, currency devaluation, and a shortage of basic goods and services. The economic crisis has also resulted in a rise in poverty and unemployment. This has affected many people who are unable to access basic necessities such as food and medicine.
The military coup and the subsequent violence, leading to the displacement of hundreds of thousands of people, has led to a decline in economic activity, and a drop in foreign investment. On February 1, 2021, the Myanmar military, also known as the Tatmadaw, seized control of the government. They arrested State Counsellor Aung San Suu Kyi and President Win Myint and declared a state of emergency for one year.
The coup took place amid a general election that was taking place in the country. In these elections, Suu Kyi’s National League for Democracy (NLD) party was widely expected to win. The military has accused the NLD of voter fraud, but the claim has been widely discredited.
Greece has experienced political instability and economic turmoil as a result of the financial crisis that began in 2008. The country’s economy was heavily dependent on borrowing. When the global financial crisis hit, the country found itself unable to repay its debt. This led to a severe economic crisis, marked by high unemployment, poverty, and a decline in economic growth. The crisis also led to political instability. Frequent changes in government and power struggles have occurred between the government and the opposition.
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III. The Impact of Political Instability on Economic Growth and Development
A. Deterioration of the Business Environment and Investment:
Political instability can have a negative impact on the business environment, making it difficult for companies to operate and invest. Investors may become hesitant to invest in a country experiencing political instability, as they are uncertain about the future of the country and the potential for a return on their investment. This can lead to a decline in foreign investment and a decrease in economic growth.
B. Decline in Trade and Tourism:
Political instability can also affect a country’s ability to trade and attract tourism. Countries experiencing political instability may be perceived as unsafe for travel, leading to a decline in tourism. Additionally, trade partners may be hesitant to do business with a country that is politically unstable, leading to a decline in exports and imports, and a decrease in economic growth.
C. Inflation and Currency Devaluation:
Political instability can also lead to inflation and currency devaluation. In times of political turmoil, investors may pull their money out of a country, leading to a decrease in the value of the country’s currency. Additionally, government policies that are implemented during times of political instability, such as printing more money to finance government spending, can lead to inflation and further devaluation of the currency.
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D. Lack of Government Accountability and Transparency:
Political instability can lead to a lack of accountability and transparency in government, making it difficult for citizens to hold their leaders accountable. This can result in corruption, embezzlement of public funds, and a lack of trust in government institutions. This can further hinder economic growth and development.
E. Limited Access to Credit and Financing:
Political instability can make it difficult for businesses and individuals to access credit and financing, as lenders and investors may be hesitant to provide funding in a country that is politically unstable. This can limit the ability of businesses to expand and create jobs and can make it difficult for individuals to access the credit they need to start a business or invest in their education.
F. Reduced Access to Basic Services and Social Welfare:
Political instability can also have a negative impact on the delivery of basic services such as healthcare, education, and social welfare. The government may be unable to provide these services due to a lack of funding or political will, and this can further exacerbate poverty and inequality in the country.
G. Deterioration of Infrastructure:
Political instability can also lead to neglect of infrastructure development, such as a lack of maintenance and investment in roads, public transport, and other vital infrastructure that is crucial to economic growth and development.
H. Deterioration of Public Institutions:
Political instability can also lead to the deterioration of public institutions such as the judiciary, police, and other institutions that are important for maintaining order and enforcing the rule of law. This can further undermine economic growth and development.
In conclusion, political instability can have a severe and far-reaching impact on economic growth and development. Historical examples such as Venezuela, Myanmar, and Greece demonstrate how political instability can lead to economic turmoil, hyperinflation, currency devaluation, and a decline in economic growth. The political instability is impacting the business environment, trade and tourism, inflation, currency devaluation, lack of government accountability and transparency, and limited access to credit and financing.
Reduced access to basic services and social welfare, deterioration of infrastructure and public institutions, all these factors can have a negative impact on a country’s ability to improve its standard of living and provide for its citizens’ basic needs. It is therefore crucial for governments and leaders to work toward political stability and ensure that policies and institutions are in place to promote economic growth and development.