Political stability remains amiss. The suppression of dissenting voices and human rights is fuelling fears that this hybrid government may eventually become a repressive regime.

The economy has started showing some signs of recovery, but leveraging it for sustainable growth in the future is becoming difficult not only due to structural problems, like a high level of debt and lavish ways of running the government but also due to political chaos and a general sense of insecurity and mistrust prevalent in the country.

As the time for presenting next year’s budget is nearing, people and businesses are growing increasingly nervous.

The PML-N-led coalition government is trying to develop a budget to appease agitating Pakistanis. Three-time former prime minister Nawaz Sharif has once again become the official head of his party.

Though Nawaz has yet to return to the Parliament, he has started holding consultative pre-budget party sessions at his residence and is issuing guidelines to the top government officials, including his brother, Prime Minister Shahbaz Sharif, and his daughter, Chief Minister of Punjab Maryam Nawaz.

An external funding cushion along with stable government forces is needed to ensure continued economic recovery in the near future

Meanwhile, a fresh wave of extremism and terrorism is sweeping across Balochistan and Khyber Pakhtunkhwa, which the armed forces continue to confront.

The general law-and-order situation in the country is also worsening, exposing structural weaknesses of our fractured political system and creating greater demand for state-resourced law enforcement agencies.

This high level of political uncertainty and confrontation, amidst the growing suppression of dissenting voices and human rights violations, poses great perils for the government’s normal functioning and is harming the economy.

Unless some political order emerges from the current chaos and unless violations of human rights are stopped, local and foreign investors and businesses across Pakistan may continue to show minimum trust in the present political dispensation. Their lack of trust would make it harder for the government to revive the economy.

The continuation of economic recovery and growth depends largely on how soon Pakistan enters a new International Monetary Fund (IMF) programme. This time, the IMF has asked the government to get a Fund-dictated budget approved by the Parliament and then hold further negotiations to qualify for the funding.

The government has agreed to this very tough condition, but a plan B is being discussed in the innermost circles of power.

Though no one in the government is talking about this plan B due to the matter’s sensitivity, well-placed political sources say that Nawaz Sharif wants the government to work harder on finalising an economic reform agenda parallel to the one being dictated by the IMF and secure solid assurances from Saudi Arabia, United Arab Emirates, Kuwait, and Qatar for external funding.

The idea isn’t to avoid entering a new IMF bailout package but to be ready to survive without it, just in case the Fund delays its approval or negotiations on new, tougher conditions may take more time than Pakistan can afford.

It is quite logical for Pakistan’s government to continue working on plan B while doing what is required to secure new IMF funding

The recent and rather dramatic engagement of the UK-based Foreign Commonwealth and Development Office with the prime minister’s committee on home-grown economic reforms reflects this new strategy.

The foreign office’s accelerated efforts to ensure early visits of top Qatar and Kuwait officials, following the visits of Saudi and Emirati dignitaries in the recent past, are also part of the same strategy.

Pakistan needs a $4 billion to $4.5bn cushion in the first quarter of next fiscal year (July-September 2024) to remain current on its external debt repayments and finance imports that are set to grow.

If the country doesn’t get the first instalment of the new IMF loan between July to September, its need for external financing may be even greater.

Publicised and even silent contacts are being made with Gulf Cooperation Council countries and China in anticipation of this requirement. The underlying concern is about the health of the Pakistani rupee, which is overvalued, and the Ministry of Finance and the State Bank of Pakistan know it.

It cannot remain as such at the beginning of the new fiscal year, as the central bank is supposed to square all its dollar selling in the interbank market at the end of this fiscal year in June.

Furthermore, a dramatic decline in the rupee value if Pakistan cannot arrange enough foreign funds from anywhere other than the IMF in July-September may jeopardise the SBP’s planned move to go for monetary easing. A gradual, calculated downward adjustment in the rupee value requires a prior arrangement of some sizable foreign funds.

So, it is quite logical for Pakistan’s government to continue working on plan B while doing what is required to secure new IMF funding. Growth in exports, remittances, foreign direct investments, and portfolio investments seen during this fiscal year are all welcome developments.

An external funding cushion is required to sustain these trends in the next fiscal year when imports will surely grow. What else is required is political stability. Let’s hope that better sense prevails and the current political crisis is contained before morphing into political anarchy.

Published in Dawn, The Business and Finance Weekly, June 3rd, 2024