Default fears

The split mandate in the February 8 polls has evoked concerns about the continuity of the economic reforms process initiated under the IMF standby agreement. While the incoming government has still to secure $1.2 billion from the Fund’s bailout programme of $3 billion expiring in March, it has also to negotiate a new programme with the international lender to address a serious balance of the payments crisis that requires a repayment of something around $25 billion in a fiscal year on top of managing the deficit in the current account.

The critical economic situation warrants a stable government at the Centre – one that enjoys the mandate of the masses and is thus in a position to agree and then adhere to the tough conditionalities to secure a bailout package from the IMF. Unfortunately, that’s not the case at hand a PMLN-led minority government is all set to assume power amid deepening political polarisation and instability – something that is highly likely to complicate government efforts to secure IMF financing. PTI chairman Gohar Khan has already dropped a hint to this effect, saying that if election results are not released under Forms 45, it could impact Pakistan’s prospects of an agreement with the lender of the last resort.

Fitch, one of the three top global rating agencies, has expressed similar concerns, saying that finalising a new IMF deal is likely to be challenging for the new government, given the “close outcome” of the February 8 general election and the resulting “near-term political uncertainty”. As the default fears are anticipated to keep haunting the nation, there is a dire need for the policymakers to develop a private sector that can generate greater export income, attract FDI and reduce import dependence.

Published in The Express Tribune, February 22^nd, 2024.

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