As the political temperature inches up day-by-day, adding to uncertainty, the inevitable toll this has on the economy and key macroeconomic indicators of its health starts to become very apparent. After briefly gaining some ground over the dollar after the resumption of IMF’s $6 billion EFF followed by the release of a much-needed $1 billion tranche, the rupee is under pressure yet again, falling to a fresh low of 180.57 in the interbank on Friday. A massive subsidy through a cut in petrol and energy prices provided by the government two weeks back has irked the Fund, which is now persistently delaying the conclusion of the on-going seventh review as it reportedly remains unsatisfied and feels that the relief package, which also includes an amnesty scheme, is a breach of commitments. Meanwhile, as the political climate in the country heats up, leading to uncertainty over the continuity of the current government, markets have begun to react with the stock market closing the week with a 777-point drop. While the Finance Ministry under Shaukat Tarin is trying its best and is confident that the IMF would come around in a few days, there is little it can do to address the tense political situation where realistically, perhaps apart from the powers that be, no one is sure how it will progress and end.
What is more, Pakistan has decided to pay $900 million to one of the companies engaged in the settlement of the RekoDiq dispute whereby Pakistan was fined $6 billion by a global arbitration. Although the ECC has approved the payment, SBP Governor Reza Baqir, understandably concerned about the effect such an amount being remitted out of the country would have on the dollar-rupee parity, has asked the government to consult the central bank over how to go about the transaction. In the midst of an economic reality where inflation is peaking and there is instability in markets, a federal government in crisis mode, busy in an effort to expend all administrative and executive options to save its government, will simply be unable to pay any attention to the economy. That national security, as per the policy of this government, is tied fundamentally to economic prosperity, is all the more reason to resolve the ongoing political turmoil swiftly and without incident.
