The year 2011 was one of exceptional volatility and divisiveness in Pakistan even by the grim standards of its turbulent political history. The country lurched from one kind of crisis to another, with no leadership or direction to inspire any hope that the countryâs multiple and mounting problems would be addressed. This contributed to a public mood of gloom and foreboding about the future.

The year ends on a note of acute political uncertainty at a time when an unravelling economy poses the most serious threat to national stability. The crucial question this poses for the year ahead is whether the countryâs leaders will be able to avoid political turmoil and confrontation and avert a gathering economic storm.

President Asif Ali Zardariâs unexpected health challenge, a jittery government mired in contradictory moves, the government-judiciary standoff, civil-military tensions and intensification of partisan politics at the start of the election cycle, combined to produce an intensely fraught and unpredictable environment. And this at a time when deep-seated governance issues continue to fester.

Lost in the outgoing year was any sustained government focus on fundamental national problems. This neglect compounded the disarray in public finances, worsened the nation-wide disruption caused by the energy crisis and accelerated the collapse of several state enterprises. Nor was attention paid to pacifying the enduring trouble in Balochistan. Karachi went through a prolonged period of bloody mayhem before the government was forced to act by the Supreme Court to stop the killings.

This internal under reach contrasted with a near-obsessive external preoccupation â with relations with the US. Ties virtually broke down in a year of perpetual crises between the two countries. Dealing with Washington became a relentless if unedifying endeavour which diverted official and public attention away from pressing domestic problems. In playing out this way America became something of a fatal distraction.

The PPP-led coalitionâs lack lustre performance reflected the fact that its leaders spent more time in power plays and mouthing vacuous rhetoric than dealing with serious issues. Endless political manoeuvres consumed the energies of government leaders and laid bare the disconnect between their priorities and the pressing needs of the public. This generated an environment of despondency. Hope became an almost lost commodity in 2011.

The slide in governance was evident in every sphere even as the ruling party enlisted more allies to join the coalition government. This deal making paid handsome political dividends but offered no solution to the countryâs vexed problems. The nonstop parade of ministers on TV talk shows suggested that the government saw political point scoring as a substitute for governance.

The absence of leadership had serious repercussions through the year. This was illustrated by the infirm official response to the assassination of Punjab governor Salmaan Taseer, which fed an environment of intolerance that no one cared to address. The September killing of Shia pilgrims in Quetta indicated another dangerous slide into religiously motivated violence.

A pretend government rarely concerning itself with governance cried conspiracy every time its own missteps landed it into trouble. It endlessly used the bogey of threats to democracy as an alibi for its lack of performance. Fitful and ad hoc responses to the problem-of-the-day characterised its running of the affairs of state.

The biggest casualty of this approach was the economy. The steady worsening in the economic situation was not matched by urgent policy actions to halt the downward spiral. Instead, lack of reform effort, mismanagement and increased budgetary pressures including from bailouts of insolvent state enterprises, kept aggravating a runaway fiscal problem.

For much of the year the government resorted to more borrowing from the central and commercial banks to finance the rising gap between its income and expenditure. Predictably this had adverse effects on the exchange rate and the balance of payments. It injected more inflationary pressures into an economy in the grip of âstagflationâ, low growth and high inflation.

On the calculation that it could muddle through to elections, the government resisted taking corrective measures to deal with widening macroeconomic imbalances. Its erroneous assumption was that several âpositiveâ exogenous factors would remain in play and provide a âcushionâ to avoid taking necessary measures for fiscal consolidation. These factors included a temporary improvement in the balance of paymentsâ current account, which reflected an unexpected increase in export earnings and rise in remittances from overseas Pakistanis.

What were short-lived, windfall factors produced false optimism, encouraging the government to terminate the countryâs programme with the IMF in September. The impact of this on other external inflows was disregarded.

Warnings were also ignored that reliance on transient factors would hasten rather than postpone a full-blown financial crisis. In the closing months of 2011 these warnings began to ring true as âfavourableâ external factors started to reverse themselves. Exports began to decline, remittances levelled off, foreign investment plunged, a higher import bill started to exert pressure on the balance of payments and the current account turned negative. This marked the beginning of a dangerous trend.

Foreign exchange reserves began to deplete with interest payments on foreign debt and the central bankâs intervention to shore up the depreciating rupee. The exchange rate wobbled under the impact of economic uncertainty. A number of repayments on external debt obligations due in 2012 including to the IMF raised the prospect of reserves dwindling further. With no new inflows expected, this held out the danger of pushing the country towards insolvency and external debt default.

But the economic peril facing the country was not on the minds of Pakistanâs political leaders as 2011 drew to a close. Instead their attention was focused on the drama of President Zardariâs âreturnâ to the country, the panicked handling of the âMemogateâ affair and the launch of Bilawal Bhutto as active party leader.

It was Imran Khanâs electrifying impact on the national scene that turned out to be the yearâs most promising political development. From his stirring Lahore public rally in October to the boost he received when an impressive group of âelectablesâ joined his party in December, Imran Khan emerged as a significant new political factor and symbol of hope for many Pakistanis.

The groundswell of support for him indicated a widespread yearning for change across the country. Tapping into the spirit and energy of a newer generation, Imranâs potential to emerge as the countryâs third political force seemed greater than any time in the past given rising public disenchantment with the two major political parties. The coming year will determine whether Imran Khan is able to dent or surmount the countryâs patronage-dominated politics to usher in a new politics based on public service rather than self-aggrandisement.

Among the few positive trends in 2011 was on the security front. Terrorist violence came down compared to the record high of 2009. Suicide bombings declined although IED related incidents didnât. Operations in the tribal agencies over the past two and half years began to yield results in degrading the militantsâ capability to mount attacks in the countryâs cities. Except for two agencies all the others were cleared and began transitioning into the consolidation phase.

While militants were put on the run this didnât mean that the threat receded. Gains appeared fragile especially as the situation in the tribal areas remained closely tied up to the continuing war in Afghanistan and uncertainties of the 2014 transition, when Nato hands over security responsibilities to Afghan forces.

Although several external challenges loom that will have to be negotiated in the year ahead it is the internal situation that will determine the countryâs fortunes. The most consequential question could be whether the political and economic dynamics set off by a tumultuous 2011 accelerate into a perfect storm with grave repercussions for the countryâs stability.

The critical question 2012 will have to answer is whether Pakistanâs leaders will show understanding of the perilous internal and external situation and rise above themselves to steer the ship of state through such stormy waters to safer shores?