The rupee hit its lowest ever of over 180 to a dollar in the interbank market on the weekend as the shares market continues to decline.

The International Monetary Fund (IMF) appears largely satisfied with the PTI government’s explanation of the Rs346 billion relief package announced late last month in an apparent attempt to appease the inflation-stricken households. The State Bank of Pakistan (SBP) kept the key policy rate unchanged at 9.75 per cent but its warning that it could advance the next Monetary Policy Committee meeting to raise the interest rates if need be has pushed cut-off yields in the last public sector debt auction.

The political instability in the wake of a no-confidence motion submitted by the opposition to oust the prime minister is forcing the government to take populist measures that it might not have if it weren’t facing the existential threat from the opposition political parties that have come together to push Imran Khan out of power in spite of their deep divisions.

Regardless of who wins and who loses the no-trust motion, the government will not find it easy to handle the economy — many hard decisions will have to be made

No one expected the Kaptaan to go away without fighting till the last ball, but the last week’s events in Islamabad have spawned fears of violence. The storming of the Parliament Lodges, where the opposition lawmakers were housed by police commandos and counter-terrorism force was followed by the attack of the PTI workers on Sindh House in Islamabad. It happened after the opposition gave media access to the place to interview dissident parliamentarians of the ruling party.

The ruling party’s insistence to gather a million people outside the parliament in the event of the vote on the no-confidence resolution and the threats being tossed around by the ministers has forced the opposition political parties to make their own plans to counter the move. Indeed, everyone expected the prime minister to fight back — but not in this way.

The situation is fluid and may likely continue for several weeks to come, with its impact expected to reverberate for many months. Regardless of who wins and who loses the no-trust motion, the government will not find it easy to handle the economy. Many tough decisions will have to be made. If the opposition succeeds in de-seating the prime minister, it will have its work cut out for them.

The first job would be to approach the IMF to release the next tranche to shore up foreign exchange reserves and take the pressure off the home currency. PPP chairman Bilawal Bhutto Zardari has already hinted at renegotiating the deal with the multilateral lender. It is not clear if the Washington-based fund would be more kind to the new government than the Imran Khan administration.

The second job, the businessmen interviewed by telephone over the weekend say, for whoever — the PTI or the opposition parties — is in power after the vote on the motion would be to mend Pakistan’s relationship with the West, especially the United States. “That does not necessarily mean that we have to dial down our ties with China. Going to Russia when the Kremlin had planned to attack Ukraine was a big foreign policy mistake Imran Khan made. He could have called off the tour and stayed neutral. That would not have brought upon us such pressure from the European Union and the US, with which our relations are already facing problems due to the Taleban takeover of Kabul last summer,” a textile exporter argued.

“Improvement in our ties with Washington and European capitals is crucial not only for securing some concessions from the IMF but also to get out of the grey list of the Financial Action Task Force (FATF).”

A senior executive of a chemical company was of the view that once politics cool down Islamabad will have to reconsider its policy towards India. “If you think you can improve your relationship with the West and get off the FATF’s enhanced monitoring regime without making some kind of headway with New Delhi, you are totally mistaken. I have information that our present military leadership too is in favour of resuming ties with India,” he claimed.

However, there are others who feel that the top priority has to be given to the resolution of domestic political problems. “The settlement of the outstanding issues with the IMF and the western powers is important. But more important is to tackle our domestic problems first. I cannot say if the present government will be in power after a few days or not. But in my opinion, once this crisis is over, all the parties must sit together and develop a consensus on electoral reforms so that we can have political stability. I think that the government term of five years should be curtailed to four years. We are very impatient people and a kind of fatigue starts to take over us every three to four years. If we manage to clean up our political mess, we will be able to put back the economy on the rails and end our international isolation.”

Published in Dawn, The Business and Finance Weekly, March 21st, 2022