IMF deal sans political stability!

Investor confidence is at all-time low that cannot be restored with just IMF deal

KARACHI:

When in opposition, the political parties make tall claims that perhaps they have some mystical innovative solutions for the chronic economic woes of Pakistan. But as they sit on the treasury benches, they all eventually bow their heads in front of the IMF to bail them out of their years of economic and financial mismanagement and gross incompetence. However, there is a limit to everything and it seems that we have eventually crossed the one in the case of IMF.

It seems clear that there is already donor fatigue in play as this time around no one wants to hand over billions of dollars without some solid assurance and they all are looking at each other and finally to the IMF for some confirmatory signal. But, seeing the coalition government losing the throne of Punjab and crumbling in the centre, it must have cast some doubts in their minds about the ability of the sitting government to continue the rollout of tougher measures as before.

On the other hand, despite burning all the political capital, the sitting government sees little or no light at the end of the tunnel. Lately, the news flow for the fire sale of both listed and unlisted state assets through the Inter-Governmental Commercial Transactions Ordinance 2022 has created a buzz with no official version but dozens of unofficial ones citing desperation at the Q-Block to avert a default as the fiveyear Credit Default Swap (CDS) for the country has skyrocketed to a whopping 34% against the average of 6%.

Also, many eyebrows are raised when it comes to bypassing the key regulatory requirements that are necessary to ensure transparency and competitiveness during transactions. Looking from Pakistan’s perspective, the entities on sale are strategic in nature and are not the cause of any concern for the country. In fact, they are profitmaking businesses, providing a steady source of dividends to the government, but the ones we should have got rid of long ago are the kind of sinkholes that no investor will touch even with a 10-foot pole.

For selling the stakes of listed companies such as OGDC, PPL, PSO, etc, the timing could not have been worse as valuations in the stock market are insanely low. In fact, it is the time to buy more and not sell as there is a lot of blood on the street. Keeping those losing enterprises that are haemorrhaging the exchequer heavily due to political reasons and selling the winners at a steep discount is like throwing a kitchen sink just to secure an IMF deal.

Despite all the doom and gloom, it seems that the global powers are determined not to have another debacle like Sri Lanka as it may trigger a domino effect in the emerging markets where most of the countries are facing a huge pressure on external accounts due to the rising energy costs. However, it seems that the IMF wants to keep Pakistan on edge and squeeze to the maximum to sign up the toughest ever front-loaded programme in the history of Pakistan or the IMF.

Explaining the recent rout in the stock market that shaved off 6,000 points and the sharp decline of Pakistani rupee that lost more than Rs70 against the dollar since April, AKD Securities CEO Farid Alam is of the opinion that amid political chaos, the longer window for the disbursement of IMF loan tranche is creating lots of uncertainty and speculation in both equity and currency markets. Also, Alam re-emphasised the pivotal role of central bank governor, the position which has remained vacant since May 3 when Reza Baqir left the office, to manage the key day-to-day policy affairs.

With the fate of the feeble coalition government hanging in the balance and demand for a general election getting louder even from within the PML-N quarters, the burden to carry out reforms is becoming unbearable and the political cost is too much for any political party. It seems that investor confidence has eroded to an all-time low and it cannot be restored with just the promise of an IMF deal as the lingering political instability and indecisiveness on the part of the government on key policy issues will mask any hope for recovery.

THE WRITER IS A FINANCIAL MARKET ENTHUSIAST AND IS ATTACHED TO PAKISTAN’S STOCKS, COMMODITIES AND EMERGING TECHNOLOGY