PDM ‘collapsing’ like a house of cards?

Several major developments took place last week. Pakistan’s political leadership, including PM Shehbaz Sharif, was in the US holding talks for external debt restructuring and debt repayment suspensions. The US, UN (United Nations), WB (World Bank), IMF International Monetary Fund), among other multilaterals, all favoured support for Pakistan.

On the flipside, Pakistan’s PM made a shocking statement on debt restructuring in an interview to Bloomberg which has diluted the impact of goodies coming. Then the PML-N’s (Pakistan Muslim League-Nawaz’s) finance supremo (Dar) has announced his comeback to take a front row seat in Islamabad. And on the weekend, audio leaks of PM and others surfaced while a plethora of other audio tapes are available at darknet for sale.

The political drama must now come to a logical conclusion. The country needs direction and leadership to steer it out of challenges on multiple fronts – especially on the economic landscape. This government is failing miserably. Ever since the VONC, PML-N’s popularity graph is on the decline. The ‘super Shahbaz speed’ bubble has been busted.

The PDM (Pakistan Democratic Movement) narrative that all economic woes are due to PTI’s (Pakistan Tehreek-e-Insaf’s) incompetence is now biting the dust. Media is slowly moving away from PDM’s narrative to safeguard its own credibility. Now with Dar’s (possible) return, a last-ditch effort is being made to create an illusion of economic recovery (which many believe he can) to regain lost political capital before going for elections. Moreover, Dar’s return may also help test the political temperature to decide whether time is ripe for Nawaz’s return as well.

Although media is reporting Dar’s return, to assume the role of finance minister, at the time of writing, it is unclear whether he is returning or not. Dar (unlike Miftah) is not a bold person ready to accept a challenge; but he is shrewd enough to only return if he is sure that an illusion can be created in the short run. Economic stage is set for him. The macro indicators (in the short-term) are bottoming out.

Floods will likely ease the IMF pressure and can slightly widen the narrow economic path. The WB and others are speeding up inflows. Nothing is new, but already pipelined flows are to be repurposed and expedited. There might be some ease in bilateral debts’ repayments. Moreover, oil and other commodity prices are declining. Inflation in Pakistan has peaked. All these will allow some cushion in an otherwise very tight external account situation. They will also allow room to stabilize PKR/USD (with possible appreciation). And everyone is looking at the currency – from market gurus to housewives to ‘Mr X and Mr Y’, and Dar may see this as an opportunity to deliver a most awaited David Copperfield moment.

However, the window is short. He cannot help sustain the illusion till August 2023. The best case is to be in power for 2-3 months and use the upcoming flows to stabilise Pak Rupee, bully banks and exporters to help sustain PKR appreciation; fudge and juggle some numbers to salvage the situation, and then create a rosy situation before elections.

The other objective of Dar’s return is to see how serious the establishment is in bringing Nawaz back, and to evaluate how much government and its operators can sustain IK’s pressure. The end goal for PML-N is to bring Nawaz back and do away with his disqualification. Dar can be a test case to serve that purpose. If Dar successfully crosses all legal and political hurdles, then Nawaz, too, can achieve the same. Let’s see how all this unfolds.

Many are of the view that just like ‘Shehbaz speed’, the ‘Daronomics’ bubble will also burst. And, next could be the bubble of perceived crowd-pulling charisma of Nawaz. He was the man of the 1990s, and his party is still stuck there.

The formula of mainstream media capture of 2010s may not work in the presence of very strong social media where PTI has demonstrated its success. Today, the tide is with IK. Political wrangling and handling cannot change that ground reality.

One can see that the sitting PM is doing more damage. PDM is wasting the opportunity in the flood crisis. They should have learned from the PTI which managed Covid’s fallout superbly. NCOC (National Command and Operation Centre) was formed. Appeals were made to the IMF and concessions were received. Now the government is absent at the federal level to deal with the floods while the governance in Sindh is abysmal. Nothing from pledges of FoDP (friends of democratic government) in 2010 materialised. No one will support the sitting government where many cabinet members are on bail. It’s a reality and should be accepted.

On top, the PM in an interview to Bloomberg – which all investors watch religiously – commented that ‘All hell will break loose’ if external debt is not restructured. The next day Pakistan bond yields tanked. Now the rollover of any commercial debt is a near impossibility. Forget about reaching out to global capital markets for fresh debt issuance.

The leaked audio tapes suggest that the PDM formula is doing more damage than good. This must change. Khan wants next elections. But at the same time, PTI is open for coming back to national assembly for formation of election commission, caretaker government and the most important decision of the next army chief. Chips are on the table. Bargain is on. Time is running short.

Dar and Nawaz are watching closely from their comfort zone. They are desperate to come back as kings, and Khan is not letting them have any easy access. Public is behind him. The pressure is on the establishment to find a middle ground. Short of calling elections, or forming a unity government till normal election time, nothing might work.

Copyright Business Recorder, 2022