Like much of the country
The political headlock on Islamabad has already started affecting the economy, especially capital markets whose flows depend primarily on sentiment and speculation. That is why the stock market nosedived long before PTI and PAT rebellions marched on the capital’s so-called red zone and encircled parliament. KSE’s rapid rise despite a clearly suffering economy may have been slightly difficult to explain – it was obviously decoupled from the real economy, at least to an extent – but the fall hardly needs interpretation. The stock market is haemorrhaging – hundreds of millions of stock investments are now in money heaven – and the currency market has started reacting as well. And this time the finance minister might not be able to manage a repeat of his rupee-saving performance by arranging dubious exogenous inflows to be ‘parked’ in central bank vaults.
There are IMF problems as well, which could not have been timed any worse considering how the government has its plate full. As impressed as the Fund has allegedly been with our macroeconomic indicators (reasons not explained), it will not go ahead with the last tranche of the loan unless there is a four per cent increase in the electricity tariff. And this is where even the government’s staunchest critics have defended its position. There is just no way Nawaz can get away with another electricity tariff hike, no matter how marginal. PTI and PAT will hammer it to no end, and such steps will add to the protests’ initiative.
There is also a bigger perception problem facing Pakistan, one that reflects capital market confidence erosion on a larger scale. With the capital stormed, government besieged and markets hurting, there is practically no chance of investment funds finding their way into Pakistan. And it is not as if the pre-‘revolution’ scenario was much more encouraging. Pakistan faces political as well as economic isolation, a frightening prospect considering how regional forces are busy building trading blocs, etc, to facilitate cross-border financial transactions and funds flows. Unless there is a clear, concerted effort to put the house in order, the economy will suffer more. The rupee will weaken, inflation will rise, deficits will widen and the common man’s wages will decrease manifold in real terms. Problems like power shortage, too, will worsen. All groups fighting over Islamabad are advised to work out a solution that keeps the economy running before taking their grievances to the public.