After a few months' drama, the IMF is finally back. However, the confidence is not. The economic concerns in the mind of market participants are not ending. Things are not making sense to some. It seems that the fear of default is not yet over. A better way to put it is that the fear of default in the near term has been averted. However, the medium-term risk persists.

The financial markets work on confidence. The feel-good factor matters a lot. Once confidence is shaken, it's tough to bring it back. Confidence and feel-good factors are tangible variables. Think of a bank run; if it happens, it is very hard for that bank to restore confidence. Economies work on a similar pattern.

The fundamental issues of the Pakistan economy were always in the back of the mind of investors. So the risk was always there. But with the political instability triggered by the Vote-of-no-confidence and the chain of local and global events after that, even the IMF program revival couldn't bring the confidence back. So the architects of the whole scheme should be blamed.

There are multiple factors for the confidence not being restored after the IMF. Apart from domestic political instability, the default in Sri Lanka, building global economic recessions, and the pressure on emerging economies, all these are augmented by the floods in Pakistan. However, within all these, the overwhelming weight is domestic political instability.

With the IMF back, there should be a case for whole liquidity to improve. By adding $4 billion in additional funding commitments from the friendly countries, external financing is more than covered. But the bond yields in the international markets are not reacting. The pressure in the currency market persists. And there is no jubilation in the stock market.

This means that markets perhaps fear the commitment from friends and may think that the rollover of debt (again mainly of friends) may not be as easy as it used to be. The $4 billion is supposed to come in the remaining fiscal year. There are no clear-cut commitments on these. No deferred payment oil or LNG deals. Nothing as safe deposits. It is all about flows from selling domestic assets. Things can change in the due diligence process. Then some may fear that some friends may ask for collateral for the existing rollover.

The pain for the household and businesses – in terms of high inflation, loss in employment, and lower profitability is not easing with the IMF back. The electricity concession for the exporters is likely to end. Petroleum levy on petrol and diesel have to increase to Rs50/liter by January, and perhaps, after that, the next step is to impose GST. IMF is not happy with the taxation that the government is proposing. This might not be sufficient. The structural taxation reforms should have progressivity.

There is some sense of anxiety still present. Pakistan's political uncertainty is unprecedented and incomparable to the regional players. Then the quantum of financing is more significant than what used to be the case in past crises. Add the emerging market pressure to it. That is all making the picture bleak. Nothing can improve significantly without resorting the confidence.