This month, Pakistan’s Prime Minister, Imran Khan, proposed the implementation of demonetization to “sift out the corruption from Pakistan’s infectious culture.” Essentially, Khan intends to eradicate a portion of the country’s circulating currency, catch tax swindlers, and reduce black money. Although not new, this proposal has shocked many citizens, given that similar measures have proven to be disastrous for neighboring countries in the past.
Demonetization in Pakistan
To understand the severe ramifications of unexpected demonetization, one does not need to look further than India, Pakistan’s neighbor to the east and southeast. In 2016, the Indian prime minister announced that the 500- and 1000-rupee notes would be demonetized beginning at midnight of the same day. The move led to a partial collapse of India’s economy and left many families in financial turmoil. Abdul Razzaq, a 33-year-old shoe polisher from the streets of Karachi, still experiences distressing trauma from the instant demonetization experience. Abdul and his family became homeless and were forced to find refuge in Pakistan’s less volatile economy after failing to exchange their savings following the prime minister’s directive. Inevitably, Abdul fears that he is facing a similar situation in Pakistan, and he may not be alone.
Winston Churchill wisely stated, “Whoever wishes to predict the future must analyze the past.” Indeed, Abdul’s concerns represent those of the country’s lower class, who will be the most affected if Pakistan suddenly demonetizes the current 500 and 1000 rupee notes. By the end of 2016, millions of Indians were struggling financially following the demonetization. Further, many Indian families were emotionally devastated as they struggled to understand the rationale behind the country’s mistimed action. Perhaps the most shocking decision was the ministry’s declaration that all demonetized notes be exchanged with the newly commissioned currency before the 31st of December. With a population of over 1 billion, a more flexible timeframe was required.
Although the move aimed to address India’s legitimate concerns, including ending rampant corruption, it removed around 86% of the circulating currency in the economy. In a country where many people lack a bank account, more deliberations and citizen involvement should have been conducted before implementing the measure. Ultimately, India’s status as the world’s fastest-growing economy was damaged in 24 hours. Interestingly, Pakistan, whose GDP is ten times weaker than that of India, intends to follow in the latter’s footsteps despite well-documented reports concerning the negative impacts of unplanned demonetization. As the demonetization talks increase, Imran Khan has yet to lay out any plans publicly; thus, many are questioning the imprudence of this political decision. It would be ethically and morally incorrect to expose Pakistan’s weak economy to further misery. More specifically, the impact will be highly devastating for small-scale businesses. Hence, agencies like the World Health Organisation have questioned why Khan is willing to plunge most of Pakistan’s poor populations into more suffering.
The fundamental issue with Khan’s scheme is his short-sightedness. His government argues that demonetization will act as a “surgical strike” on illegal wealth. In reality, demonetization will only impact people who live from hand to mouth since they seldom transact through banks. Conversely, established business tycoons will not be affected despite being the most implicated in tax evasion. They can easily move their cash into offshore accounts, leaving Pakistan’s hard-working individuals victims of the government’s careless decisions. While the world continues to have corrupt officials, quickly and assuredly, the new currency will be converted back into black money as tax evaders accumulate piles of undeclared cash.
Undoubtedly, demonetization will affect every part of Pakistan’s economy. Most businesses will experience decreased revenues, especially the manufacturing sector, which will likely witness a decline in customer traffic. Citizens will also have less disposable cash to spend on essential commodities like food. In turn, many businesses may be forced to shut down, particularly those in the food and agriculture sectors. The most detrimental problem associated with this scheme is its adverse effects on the common family. Abdul will have to battle sickness and hunger amid long working hours to overcome the problems caused by demonetization. Since moving to Pakistan, he has used his hard-earned money to buy food for his family of five. At the same time, he is trying to save some for the future. Eventually, low-income earners such as Abdul may find themselves going hungry due to the inability to shop in high-end supermarkets like Lahore Express.
Indeed, the situation will be dire for the 25% of Pakistanis who live below the poverty line. According to Muhammad Baqri, a Lahore-based Time Magazine correspondent, over half of Pakistan’s population lacks the means necessary to adjust if shock economic theories are implemented, implying that the struggle will become a reality. Whereas the devastation of this initiative will be encountered across the nation, the middle and upper classes will certainly adapt quicker. The wealthy have resources readily accessible, enabling access to debit/credit cards, a privilege that they can effortlessly obtain. This contrasts with the 55 million Pakistani individuals living in poverty (Iqbal, 2016). The lack of regard for millions of Pakistanis facing financial struggle is shocking, but some believe Khan’s priority is acquiring political praise for making bold decisions.
Given the likely negative consequences of demonetization in Pakistan, the government should consider other strategies to achieve its intended goals. Ideally, Khan should tighten the loopholes used to promote corruption. This is the reality facing India after implementing demonetization in 2016. For example, on the 27th of November, two Axis Bank managers were charged for laundering bank money in return for three-kilogram gold bars. Many similar cases abound and can be tied to the recall of currency notes. Perhaps, Khan should consider that since there is no limit on the number of bank accounts citizens can possess, introducing bank legislation to prevent the higher middle class from “legalising” their black money would be more effective. More importantly, Pakistanis should also demand a change in the country’s system of governance.
Overall, Khan’s proposal will only accelerate financial instability and inequality in Pakistan. This underscores the need for parliament to review the demonetisation plan thoroughly before it is adopted. The majority of Pakistanis should not suffer at the expense of the upper-class and remorseless politicians. Khan’s ideologies should be a concern for every citizen with a conscience. His decision-making on critical national issues is not based on a careful analysis of Pakistan’s real economic situation. It casts doubt on his leadership ability and likewise decreases people’s trust in him. Demonetization that disregards economic consequences on citizens cannot be adopted in mature democracies, so it would be unjust for Pakistan to proceed with such a plan.
Lahiri, A., 2019. The Great Indian Demonetization. [online] Aeaweb.org. Web.
Rowlatt, J., 2016. Why India wiped out 86% of its cash overnight. [online] BBC News. Web.
Shariff, A. and Ullah Khan, A., 2016. Why Demonetisation Will Not Eliminate Black Money or Corruption. [online] The Wire. Web.
Asian Development Bank. 2021. Poverty: Pakistan. [online] Web.
Un.org. 2021. Inequality in a rapidly changing world. [online] Web.
Iqbal, A., 2016. Questions for oral answers and their replies. [online] Na.gov.pk. Web.