Pakistan: Uncertainty continue to mar economic performance

The Supreme Court of Pakistan has announced its verdict in favor of Ch. Pervaiz Elahi, who has finally assumed the charge of Chief Minister Punjab.

Punjab’s economic and political importance is unparalleled for any party looking to form a government in the center. The province has a population of about 110 million, making up 52% of the country’s populace.

In the FY23 budget, Punjab had budgeted a surplus of PKR125 billion, and federal allocations of PKR1.7 trillion were envisaged for the province (50% of the divisible pool). Any alterations to the budgeted provincial surplus, though unlikely, can result in trouble for future tranches from the IMF.

PTI Chairman, Imran Khan, has repeatedly asked for fair and free elections ever since his ouster in April this year. Following the recent events, PML-N Chief, Nawaz Sharif, also stated that he was in favor of holding early general elections as delaying the same would be disadvantageous to the country.

With Punjab firmly under the PTI coalition and its nominee Pervaiz Elahi at the helm of the provincial government, PTI is now expected to make a move towards the National Assembly and make its government in the center.

The political crisis in the country which started after the dismissal of Imran Khan from his office has seen Pak Rupee depreciate by 27% against the Greenback.

The current political uncertainty comes at a time when the country is already struggling with soaring current account deficit and colossal foreign debt repayments which in confluence with the political uncertainty had put serious pressure on the currency.

The current political and economic uncertainty has resulted in markets starting to price in default risk, resultantly the yields on Eurobonds/Sukuks have reached all-time high, with the December 2022 maturity instrument yields soaring to 45.6%.

At the same time, the PKR depreciation has continued unabated, despite Pakistan having reached an SLA, where concerns over filling a US$4 billion funding gap identified by the IMF remain.

Analysts expect the IMF program to resume soon irrespective of political developments, toning down the uncertainties surrounding Pakistan’s external vulnerability.

However, domestic issues (elections, inflation, interest rates) are likely keep Pakistan’s equities market under pressure.