Pakistan’s battered economy is facing another stress-test with the arrest of Imran Khan – the cricketer-turned politician who is the head of what is seen as the most popular political party in the country – with concerns over an impending default and delay in the International Monetary Fund (IMF) programme driving negative sentiment in the currency and stock markets.
Khan was arrested on Tuesday during a court appearance in Islamabad. Immediately, the stock market reacted, and shed a couple of hundred points to add to its earlier intra-day loss.
On Wednesday, the Pakistan Army was brought in to control the outbreak of violence during protests that were triggered by the arrest.
The currency and stock markets reacted further. On Thursday, while the KSE-100 Index recovered a tad due to the IMF’s statement, such was not the currency’s fortune as the rupee inched close to the 300 mark with an over 3% fall in intra-day trading against the US dollar.
“Macroeconomic indicators remain largely the same with a current account surplus and foreign exchange reserves of over $10 billion,” Fahad Rauf, Head of Research at Ismail Iqbal Securities Limited told Business Recorder on Thursday.
“What’s changed is the political uncertainty and that has raised concerns over further delays in resumption of the IMF bailout. There is massive negative sentiment in the market.”
Rauf’s remarks referred to the clashes between agitated Khan’s supporters and law-enforcement personnel across the country after National Accountability Bureau (NAB) arrested the Pakistan Tehreek-e-Insaf chairman.
The economic situation was precarious, at best, even before the fresh turn of events.
Facing a balance of payment crisis and low foreign exchange reserves, Pakistan was scrambling to arrange dollar inflows to appease the IMF that its financing needs were met.
IMF to wrap up bailout review once financing in place
“Investor confidence has decreased further,” Amreen Soorani, Head of Research at JS Global Capital Ltd, told Business Recorder.
“We are already in an IMF programme. It’s resumption is pending since November. Our debt level has increased. Such an event only hurts economic outlook.
Moody’s warns Pakistan could default without IMF bailout: report
“If clarity is achieved among stakeholders, we would see a rebound of confidence,” she said.
“We need to get our act straight. Until the time Pakistan addresses IMF concerns on the fiscal side, the talks will not go through,” she added.
On Thursday, an IMF spokesperson said the Washington-based lender remains engaged with Pakistan on securing funding and policy assurances with the goal of reaching an agreement on the ninth review.
The statement was seen as a positive signal, but analysts also believe that there is some road to travel before Pakistan fulfils its financing need obligations, which is harder to secure given the current political climate.
The Ministry of Finance moved to pacify concerns over Pakistan’s upcoming debt repayment in May and June, but many believe that concerns over default are likely to stay as long as the country’s economic house remains in distress.
Govt will have to save Pakistan from default for next two years: Miftah Ismail
In a comment to Reuters, Dr Reza Baqir, former central bank governor of Pakistan and global head of sovereign advisory services at Alvarez and Marsal, said the IMF has the capacity and the flexibility to help member countries in a variety of political circumstances.
“It is usually up to the country to present a credible plan of policies and financing that, in the face of political uncertainty, will credibly address the members’ balance of payment problems,” said Baqir.