A suicide bombing in the capital Islamabad last Friday killed one police official and injured six people in a latest assault claimed by the Pakistani Taliban.

The banned Islamist group, which ended the truce with Islamabad last month, has launched a series of attacks in the country.

Pakistani authorities have urged the Afghan Taliban, who seized power in Kabul last year, to use their influence on the Tehreek-e-Taliban Pakistan (TTP) to make peace with Islamabad, but several rounds of negotiations have not yielded a positive result.

Pakistan faces multi-pronged security challenges, not only from the TTP, but also from the new rulers in Kabul, as shelling from Afghanistan along its border with Pakistan has killed several civilians.

The security situation is likely to deteriorate next year, but Prime Minister Shehbaz Sharif's government has neither the popular mandate to tackle it nor the economic means to overcome the challenge.

Economic turmoil

Pakistan has been grappling with a faltering economy for decades, but the COVID pandemic, and now the worsening global economic slowdown, have made it almost impossible to tackle the challenges facing the Muslim-majority South Asian country. Massive floods, which many experts dubbed a "climate catastrophe," also put additional pressure on the fragile economy.

In October, the inflation rate reached an all-time high of 14.9%. The Pakistani rupee is at its lowest against the US dollar, and petroleum prices are out of reach for common citizens.

According to Pakistan's central bank, the country's foreign exchange reserves have declined to $6.7 billion ($6.3 billion), the lowest figure in the past four years.

"Pakistan will continue to face a number of challenges in the coming year; a deepening economic crisis amid a rising political instability," Niloufer Siddiqui, a political science professor at the State University of New York, told DW.

Analysts are of the view that the incumbent government doesn't seem to have a plan to fix the economy.

"In 2023, the government will focus on the usual short-term fixes that buy Pakistan more time but ultimately don't end up solving the underlying problems, until the cycle plays out anew. So we can expect Islamabad to look for more bailout funds from the usual suspects — China and the Gulf countries," Michael Kugelman, a South Asia expert at the Washington-based Woodrow Wilson International Center for Scholars, told DW.

Husain Haqqani, a former Pakistani ambassador to the US and director of South and Central Asia at Hudson Institute, said Pakistan has not invested in human capital in the past seven decades. "It lives on textile exports and external borrowing instead of attracting diversified investments. It will probably avoid default through a mix of further borrowing and cutting imports but there is no sign of much-needed fundamental economic reforms," he told DW.

Political mess

Instead of focusing on the economic crisis, the country's politicians have been engaged in a bitter power struggle.

Pakistan has been politically unstable since former Prime Minister Imran Khan's ouster from power in a no-confidence vote in April. Khan has launched a nationwide movement to overthrow the coalition government headed by PM Sharif. The military, which has ruled the country collectively for more than three decades and still calls the shots from behind the scenes, feels vulnerable in the face of scathing criticism of interference in politics.

Khan told media last month that the "only solution to the alarming economic crisis is to hold snap polls in the country."

But will fresh polls and a new government end political crisis and revive the economy?

"Pakistan has faced challenges since its inception and is known as a 'crisis state' for a reason. Unless its civil and military leaders completely change course, and focus on governance, normal relations with neighboring countries, and building an economy, it is unlikely 2023 will be drastically different from 2022," said Haqqani.

But analyst Kugelman is hopeful that Pakistan will fare better next year.

"Khan has eased his rhetoric and ended his long march, and a key element of uncertainty has been removed [former army chief Qamar Javed Bajwa]. Additionally, the flood waters have receded, though millions are still in need of assistance. Moving to 2023, the challenges I fear the most are security and economic," he underlined.

"The appointment of the new army chief means a key source of uncertainty has gone away. Now the big question is the election calendar. So long as the pressure tactics are not street protest-focused, the situation should remain manageable. But we can't rule out an escalation by Khan," Kugelman added.

Haqqani believes that political polarization is worse in Pakistan now than ever before. "If politicians cannot embrace reconciliation, their conflict will only attract further military intervention," he underlined.

Edited by: Shamil Shams