THE import-dependent national economy has landed at a difficult juncture within months of a sharp rebound. Many businesses are pinning their hopes on an International Monetary Fund (IMF) deal to improve the country’s market credibility and to pave the way for new credit which is crucial to closing the current account gap, stabilising the currency and meeting repayment obligations without eroding forex reserves. Some experts, however, wish the IMF deal to get delayed till December, allowing the government enough time to minimise the political cost of adjustments.

At the end of the first quarter of 2021-22, three months after reporting 3.9 per cent GDP growth in 2020-21 following 0.5pc contraction in 2019-20, the rosy picture of the economy has somewhat faded. The ballooning current account deficit, weakening currency, inflationary pressures and rising unemployment were already testing the system’s endurance, but less-than-smooth sailing of talks with the IMF for the resumption of $6bn extended loan facility for the instant release of $1bn tranche threw a spanner in the works.

Besides, the country’s inability to get off the Financial Action Task Force (FATF) grey list worked as a dampener for the elated business class which was just about celebrating the impressive top and bottom lines on their balance sheets.

To top the growing economic concerns, the political opposition, sensing some fissure in the power balance, decided to capitalise on the discontent through street protests.

Aware of the weakening of the global growth momentum, the local business class seems more anxious over political and diplomatic factors

The hard-earned goodwill in the business elite, won through a multi-trillion-rupee stimulus package in the wake of the Covid pandemic last year, seems to be somewhat waning.

The recent critical posturing of the Federation of Pakistan Chamber of Commerce and Industry (FPCCI) towards the State Bank governor, the poster boy of the ruling clique, is interpreted as an expression of growing discomfort with the government.

“Our stakes are too high. How can we tolerate the nonsense of justifying policies that have eroded the value of country’s currency and our assets in dollar terms …” asked a business leader wishing anonymity.

A senior executive known for his apt articulation of the private sector’s sentiments highlighted another angle. “Most long-term investors treat periodical political unrest as a routine natural hazard of democracy. It is factored into our calculations. I find the resurgence of violent extremism in Pakistan, inspired by Taliban victory in Kabul, more unsettling. It is never wise to politicise religiosity, more so in a country infested with sectarian divides,” he said.

“We have been there before and know what digression in security situation means for trade and industry. It deflects investment, shut out business partners and hurts the country and its future more than anything,” he argued.

Besides the immediate relief from IMF’s $1bn tranche, the government is expecting the deal to help materialise the disbursement of $1.6bn by the Asian Development Bank and $1bn by the World Bank during the remaining eight months of the ongoing fiscal.

“Shaukat Tarin [the leader of the finance team] was fairly confident, but now that the last member of Pakistan’s negotiating team has left the US without any announcement, signals were probably misread or perhaps there was some misinformation,” commented a member of the Economic Advisory Council (EAC).

“I find the attitude of both IMF and FATF too harsh under the current circumstances. Dealing with the pandemic fallouts, the government has been working for stability while discounting the high political cost. I wonder if their decisions are motivated by merit or politics,” he added.

“The name-calling, however, will not help. The prime minister must mend the relationship with the global powers and defuse hostility. He needs to reflect hard and, if need be, make amends,” said one of the top corporate leaders. He discussed the emerging scenario privately, insisting that he would rather be “under the radar”.

Though aware of the weakening of the global growth momentum amidst persistent Covid concerns, particularly in giant American and Chinese economies, the business class in Pakistan seems more anxious over political and diplomatic factors.

Many share concern over the danger of the resurgence of a violent religious streak in the country. “The perception of insecurity in Pakistan was the single biggest factor that repelled prospective investors and did not let the economy achieve its natural pace of growth,” said a leader of overseas investors.

Several key EAC members were approached for comments. Advisor to the prime minister on finance Shaukat Tarin, though travelling, committed to sharing his thoughts on return. All others — and some leading lights of the private sector — opted not to respond, but for senior economist Dr Rashid Amjad who sounded optimistic.

“The post-Covid shock has destabilised the economy, with the rise in global oil and commodity prices and supply disruptions adding to the inflationary pressures. In my view, it is incorrect to conclude that this external shock initiated an economic crisis that would soon engulf Pakistan’s economy, as was suggested by a celebrity economic writer in this paper.

“The economy is still growing at a fast pace and is expected to surpass the targeted 4.8pc level by a wide margin (the IMF is projecting 4pc GDP growth in FY22). “Yes, there is a strong headwind which could slow down the pace of activity and accelerate inflation as oil prices rise in global markets, putting pressure on the rupee.

“We must wait for the final outcome of the IMF talks. In my opinion, the postponement of the IMF deal till December 2021 may prove to be a blessing in disguise as it will give the government time to carry out the needed adjustments in a controlled manner, blunting the political backlash.

“I am sure the finance minister will brief the EAC on his return and discuss with the EAC macro team the emerging economic scenario as he and the State Bank Governor together did before leaving for talks in Washington,” he concluded.

Published in Dawn, The Business and Finance Weekly, October 25th, 2021