The last few days produced at least two market events, even as the country was consumed by the no-confidence proceedings against Imran Khan. On Monday, the first business day after the previous government was sent packing, the local stock market produced its largest single-day increase ever, of 1,700 points, in celebration of a welcome return of political clarity and the broad economic policy spelled out by the new Prime Minister Shehbaz Sharif.
That would imply better times ahead. The populist ad hoc-ism that had recently infiltrated fiscal policy would be gone and there’s a good chance that the IMF (International Monetary Fund) bailout programme will also be brought back on track. Businesses seem happy and the market is showing it. But there’s just one little thing.
Only the previous Thursday, on April 7, just as Supreme Court judges were putting the final touches on their landmark verdict about the legality, rather the lack of it, of the PTI’s last-ditch attempt to hang on to power, the State Bank of Pakistan (SBP) held an unannounced emergency session, 12 days ahead of the due meeting, and raised the benchmark interest rate by 250 basis points; perhaps also the largest hike ever. Clearly, the inflation time bomb that’s been ticking more loudly with time is now ready to explode. The Bank blamed rising prices, as well as risks to external stability for all the rush.
That’s usually enough to take the wind out of any ambitious turnaround plan that is bound to count on significant state dole-outs to balance the politics of a new administration with the economics of a desperate country. Yet the market is optimistic. The feel-good factor has also pumped some life into the rupee, which sank to about 190 to the dollar at the depth of the crisis, but has inched up to around 182-183 now.
Prime Minister Shehbaz Sharif has been quick off the mark. He’s already met with economic experts and outlined the direction he wants to take. He’s even cut government officers’ weekends by one day and increased their daily working hours – clearly meant to establish a no-nonsense demeanor right from the first day.
Despite all of that, though, it’s not going to be easy sailing.
It’s not just that the former opposition is finding out very fast that it really had no cure for all the problems that it cited to tear down the previous administration, it’s also that PTI is now bent upon throwing a monkey wrench in the works. Imran Khan has already led a mass PTI resignation from the National Assembly. And while it might not be the wisest thing to do to leave legislation wide open for the new administration, charges of a rubber-stamp, “imported” government will ring very loudly at all the protest marches that Imran has planned.
Already, there have been protests at his ouster; not just in Pakistan but also in other countries. Now Imran will further charge the crowd and call for an early election. So far his popularity has been rising on the street, despite the humiliation in parliament, because he’s stirred a lot of hatred by blaming a US-backed conspiracy against him. But that’s where it gets even more tricky.
Nobody except PTI, not even the market, really buys that argument. When PTI played with the constitution the market sank in fear of Washington getting angry and IMF pulling the plug, and investors openly called for clarity; and sanity. So far Imran’s been able to keep a shroud of secrecy over the whole thing, citing diplomatic-security compulsions, etc, and PTI followers are taking his word for the credibility of the threat.
But now the new PM has called an inquiry, complete with the armed forces’ participation just to clear the bit about the security threat, and even asked PTI to chip in. But the party has refused to accept the inquiry, even before it has begun because it does not want to cooperate with a government that it doesn’t consider legitimate.
Much, if not all, depends, then, on how PTI will react to what will be a high-level inquiry. Should it fail to substantiate the charges that PTI used to subvert the constitution, and Imran Khan rejects it, then it’s not very hard to guess how the market will react to the confrontation that will surely follow.
All things considered, PTI’s political agitation, however legitimate, can really score only one quantifiable point against Shehbaz Sharif’s government at the moment. And that is to cause a crisis that will wreck the economy even further. If there’s no growth to offset the monetary squeeze, then unemployment will rise when prices are already high enough to freak out the state bank, and Imran will bet on all the instability to bring down the government.
It’s strange how civil society and also the economy watch from the side and wonder how these games of thrones will hurt them next. In this part of the world, the government of the people and for the people is not only not about the people, but apparently also not about the market.
— The author is a senior journalist based in Lahore
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