KARACHI: Political headwinds are growing in Pakistan, warns Fitch Solutions - the macro research arm of the global credit rating agency - in a report issued on Friday.

“The government will struggle to deliver results given growing downside risks to policy-making stemming from a growing opposition and rising influence of religious hardliners, as well as deteriorating foreign relations with the west,” said the report.

“We at Fitch Solutions believe that the government would need to deliver tangible economic improvement if its still-high popularity is to continue through the parliamentary term,” the authors state.

Pakistan’s economy is faced with growing challenges that will adversely hit the lives of the common citizens. As one example, the CPI-based inflation has reached a four-year high at 6.78 per cent in Oct, 2018 before easing to 6.2pc in December. The rising inflation has come on the back of around 25pc depreciation in the Rupee against the greenback during last year coupled with high international oil prices during the first half of 2018.

Moreover, investor confidence has declined significantly in the past six months mainly due to the economic mismanagement of the government visible in the ad hoc mini-budgets, energy crisis affecting the industry, exchange rate volatility and high interest rates.

The authors of the report say that the PTI will have a hard time facing these economic challenges as the political headwinds grow in ferocity. The report maintains Pakistan’s short-term political risk index score at 48.2 out of 100, described by the authors as “poor”.

The authors see a galvanised opposition that is “gaining momentum” after the by-elections in 11 national assembly and 24 provincial assembly seats held in October. “The polls served as a barometer for Khan’s approval rating and popularity” the report says, and the outcome “saw the opposition PML-N ... make notable gains.”

The report adds that in its first half year, Prime Minister Imran Khan’s office was “dominated by a series of high profile anti-graft and blasphemy sagas distracting from early attempts at economic reforms.”

The anti-graft saga itself, the authors note, has been marred by allegations of being “politically motivated”, and notes with concern that the PML-N has “promised political reprisals with a pledge to frustrate the PTIs agenda” following the jailing of their leadership.

‘The government would need to deliver tangible economic improvement if its still-high popularity is to continue’

“In our view, it will be important to observe to what extent the PML-N will carry out these threats over the coming months and to what degree they are successful” the report says.

The report notes that the government “led by Khan also appears to be struggling with the rising influence of Islamic hardliners, having to give in to their demands on several occasions.” It cites the cases of Aasia Bibi and the government’s decision to drop Atif Mian from the Economic Advisory Council as examples.

PTI remains in “pole position” but is increasingly “losing momentum” as it has had to backtrack on its campaign promises of never going to the International Monetary Fund (IMF) or seek financial help from other countries after PM Khan had to personally visit friendly countries to gather funds in order to avoid a potential default on its liabilities.

Going forward, “a united opposition poses downside risks to policy-making and enactment in the country” since the PTI does not have a “simple majority in the national assembly” and is “reliant on smaller parties to form the majority coalition partners [who] could leverage a stronger opposition to gain political concessions,” warns the report.

‘A united opposition poses downside risks to policy-making and enactment in the country’

In addition to the internal pressures, the government found itself in “a difficult situation” after the US President Donald Trump and PM Khan traded barbs against each other on social media.

The report mentions that, “a strengthening relationship with an increasingly outward looking China has likely emboldened Pakistan, but the government is also wary of overreliance on China, and still depends on the US for military aid as well as looking towards the IMF for a bailout package.”

Published in Dawn, January 5th, 2019