Money and politics are not enemies of development. In theory, they are among the most powerful tools a nation can possess. Money, when mobilised wisely, fuels growth, innovation and welfare. Politics, when guided by institutions and ethics, provides stability, direction and collective purpose. Yet in South Asia, the persistent question remains: are money and politics themselves the problem, or is it the mindset that governs how these tools are used?
South Asia — comprising Afghanistan, Pakistan, India, Nepal, Bhutan, Sri Lanka, Maldives and Bangladesh — is home to nearly a quarter of the world’s population. It carries immense human capital, cultural depth and natural resources. Yet the region continues to struggle with political instability, fragile institutions, debt stress, inequality and uneven development. The immediate questions arise: are these countries politically and economically stable? Have the root causes of instability been identified? And who bears responsibility — the system, the leaders, or society itself?
From a political economy perspective, South Asia offers a textbook illustration of the tension between institutions and incentives. According to Douglass North’s institutional theory, long-term economic performance depends on the quality of political and economic institutions. Weak institutions create uncertainty, discourage investment and enable rent-seeking.
In much of South Asia, political power has often been personalised rather than institutionalised. Politics revolves around individuals, families, or factions rather than rules, resulting in policy inconsistency and fragile governance.
Afghanistan represents the extreme end of this spectrum. Decades of conflict have dismantled state institutions, leaving little room for coherent economic policy. Without political stability, money loses its developmental function and becomes a survival tool, circulating through informal and aid-dependent channels. Classical growth theories — from Adam Smith to Solow — assume peace, property rights and predictable governance. Afghanistan reminds us that without these foundations, economic models collapse in practice.
Pakistan and Sri Lanka illustrate a different but related dilemma: recurring political instability combined with fiscal mismanagement. Keynesian economics supports state intervention during downturns, but only when spending is productive and institutions are credible.
In these countries, persistent budget deficits, debt accumulation and reliance on external borrowing have weakened macroeconomic stability. Politics often prioritises short-term populism over long-term reform, leading to cycles of crisis and bailout. The result is what economists call “time inconsistency", where governments promise discipline but act otherwise when political pressure mounts.
India and Bangladesh, on the other hand, demonstrate how relative political stability can translate into economic momentum. India’s large market, democratic framework and gradual reforms align with endogenous growth theory, which emphasises human capital, innovation and scale.
Bangladesh’s export-led growth, particularly in garments, reflects comparative advantage theory. Yet even these success stories are not without challenges. Income inequality, informal labour markets and regional disparities indicate that growth alone does not guarantee inclusive development — a warning long highlighted by Amartya Sen’s capability approach.
Nepal and Bhutan offer contrasting models of development. Bhutan’s Gross National Happiness framework challenges the narrow GDP-centric view of progress, echoing modern welfare economics that values well-being alongside income.
Nepal, meanwhile, continues to struggle with political transitions and governance gaps, demonstrating how prolonged constitutional uncertainty can delay economic transformation despite abundant natural resources.
The Maldives represents a classic case of small-state vulnerability. Heavy dependence on tourism exposes the economy to external shocks — pandemics, climate change and global recessions. Dependency theory becomes relevant here: when economies rely excessively on a single sector or external demand, their political choices narrow and fiscal stress rises rapidly during crises.
So, who is to be blamed for South Asia’s recurring instability? It is tempting to point fingers at politicians, colonial legacies, or global powers. While each has played a role, the deeper issue lies in the interaction between money and politics without institutional discipline.
When political competition is financed through opaque money flows, policy becomes transactional. When public money is treated as political capital rather than a trust, development stalls.
What, then, are the pathways forward?
First, South Asian countries must strengthen institutions over personalities. Independent central banks, credible fiscal rules and professional civil services are not luxuries; they are prerequisites. New institutional economics consistently shows that countries with rule-based governance outperform those driven by discretion.
Second, political financing reforms are essential. Transparent funding of political parties reduces rent-seeking and policy capture. Without addressing the money – politics nexus, anti-corruption rhetoric remains symbolic.
Third, economic diversification must be prioritised. Overreliance on debt, remittances, or a single export sector increases vulnerability. Structural transformation — moving up value chains, investing in technology and supporting SMEs — aligns with modern development economics and reduces political pressure during downturns.
Fourth, human capital must be treated as a strategic asset. Education, health and skills development are not social expenditures alone; they are growth investments. Countries that neglect them eventually face political unrest and economic stagnation.
Finally, regional cooperation needs revival beyond symbolism. South Asia remains one of the least economically integrated regions in the world. Trade, energy cooperation and knowledge sharing could transform political rivalries into economic complementarities, consistent with regional integration theory.
South Asia stands at a crossroads between money and politics. Neither is inherently destructive. Both can be engines of progress if guided by institutions, ethics and long-term vision.
The challenge is not a lack of resources or ideas, but the courage to reform the way power and money interact. For a region that has given the world profound philosophies, sciences and cultures, the task ahead is not impossible — it is overdue.
Mohammed Anwar Al Balushi
The author is with Middle East College
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