EXPLAINED: Why Is PoK In Turmoil Amid Pakistan's Economic Crisis?

According to Pakistani media reports, violent street protests in Pakistan-Occupied Kashmir (PoK) have resulted in the death of a police officer and injuries to more than 90 people since Friday (May 10).

The violence was triggered by the arrest of about 70 members of the Joint Awami Action Committee, an organization led by traders in the region, during a strike protesting the rising costs of food, fuel, and utilities.

Hardships faced by the Pakistani people due to the country's economic crisis and high inflation, compounded by the cessation of trade with India, have particularly impacted a segment of traders, as reported by Indian Express.

Protests in PoK Against High Prices and Economic Hardships

On Friday, protests against high electricity and food prices were initiated by the traders in PoK. Similar protests against high electricity bills were also witnessed in August 2023. The capital and largest city of PoK, Muzaffarabad, was brought to a halt by a general strike, resulting in the closure of public transport, shops, markets, and businesses.

Barricades were broken by large numbers of protesters who clashed with police in the Mirpur and Muzaffarabad divisions. On Sunday, paramilitary Rangers were deployed to secure government buildings such as the legislative assembly and the courts. Pakistan's economy has been experiencing extreme inflation and dismal economic growth for more than two years due to rising energy costs. Consumer inflation has exceeded 20% since May 2022 and reached 38% in May 2023, as reported by the Dawn.

Alleged Discrimination in PoK

Complaints of alleged discrimination by the government in Islamabad regarding the distribution of power to the area have been protested by leaders in PoK. Dawn reported on complaints by the region's premier, Chaudhry Anwarul Haq, about not receiving their fair share of the 2,600MW of hydropower produced by the Neelum-Jhelum project.

Haq also mentioned that his request for resources to increase the salaries of government employees in the recent budget was not accepted, and he had been forced to divert development funds to pay them.

Impact of India's Trade Policies on PoK Traders

Traders in PoK faced severe challenges after India increased customs duty to 200% on Pakistani products like dry dates, rock salt, cement, and gypsum following the Pulwama terror attack in February 2019. Dawn reported that Pakistan's exports to India plummeted from an average of $45 million per month in 2018 to only $2.5 million per month between March and July 2019.

The situation worsened when Pakistan suspended all trade following constitutional changes implemented by India in Jammu and Kashmir in August 2019, as reported by Indian Express. India-Pakistan trade has dwindled to approximately $2 billion annually over the past five years, representing a small fraction of the $37 billion trade potential estimated by the World Bank.

Pakistan's Economic Challenge

Pakistan's foreign exchange reserves have experienced a significant decline following the rise in global food and fuel prices after the Russia-Ukraine war. Like Sri Lanka's economic struggles in 2022-23, Pakistan faces a balance of payments crisis, prompting India to provide support measures.

According to the State Bank of Pakistan, the country's forex reserves plummeted from a peak of $20.1 billion in August 2021 to $2.9 billion in February 2023, sufficient to cover only a month's worth of imports. Pakistan relies heavily on imports for nearly 40% of its total primary energy supply, as per media reports.

Pakistan's economy, largely dependent on aid, lacks a developed private sector, with minimal growth observed in its stock market over the years. During FY23, the country's Gross Domestic Product (GDP) contracted by 0.17%. The International Monetary Fund (IMF) recently highlighted Pakistan's need for gross financing amounting to $123 billion over the next five years, with expected requests for $21 billion in the fiscal year 2024-25 and $23 billion in 2025-26.