Heightened political uncertainty in Pakistan is “probably one of the reasons” the International Monetary Fund (IMF) is hesitant to revive the stalled bailout package, stated Bloomberg in a note on Friday.
Ankur Shukla and Abhishek Gupta, at Bloomberg Economics, said “capital is fleeing Pakistan because there is a growing risk that the IMF will not deliver a bailout, which is needed for the country to avoid default in the fiscal year starting from July”.
The remarks come as Pakistan and the IMF remain in talks for the resumption of the multi-billion dollar programme, which has been stalled since November last year.
“Political unrest is probably one of the reasons the IMF is baulking,” the note said.
“The country’s leadership has been unstable since Khan was ousted as prime minister in a no-confidence vote in April 2022. Khan’s arrest this month (he was released after one day) has escalated the face-off between him and the government, as well as the army,” the note added.
The report highlighted that the rupee plunged to a record low of 299 per dollar after Khan’s arrest last week, but has since clawed back some gains and settled back at 285 after his release.
“The currency will likely fall further if Khan and the government continue to clash and/or if the IMF chooses not to provide loans,” it added.
Pakistan saw a fresh wave of violence last week in the aftermath of Imran Khan’s arrest with protesters ransacking state and private property, prompting the government to deploy army troops in two provinces as well as the federal capital.
At least nine people died in the unrest, police and hospitals have said, while hundreds of police officers were injured.
The government made several arrests, which targeted top leadership of Khan’s party – the Pakistan Tehreek-e-Insaf (PTI) – as well as his supporters with reports suggesting more than 4,000 people have been detained.
Khan, freed on bail later, condemned the violence that ensued, but called for protests as he pushed ahead on his call for elections. Talks on holding polls failed earlier.
At the same time, the country’s economy has continued to bear the burden of mounting debt and falling foreign exchange reserves. Talks of default gathered steam again before Finance Minister Ishaq Dar moved to pacify markets.
The worsening economic situation has also kept the currency market under pressure for months.
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