Dr. Muhammad Akram Zaheer
A recent $3 billion IMF deal has reshaped Pakistan’s economic landscape, but it is anticipated to introduce a host of political uncertainties leading up to the upcoming general elections. If the ousted Prime Minister Imran Khan is allowed to participate in the election, he is likely to emerge victorious.
Once in power, there is a possibility that he may seek retribution against his political opponents and the military establishment. However, any attempt to disqualify him or invalidate the election could have unintended consequences, involving millions of his followers. With Imran Khan’s term in office expiring next month, the Pakistani government has achieved little progress in addressing the country’s mounting economic challenges.
The 13-party ruling coalition, which has been in power for the past 14 months, has failed to implement significant economic policy initiatives, resulting in the deterioration of key macroeconomic indicators. Fortunately, immediate concerns regarding Pakistan’s economic stability were alleviated last week when the government secured a short-term $3 billion financial package from the International Monetary Fund (IMF). This much-needed relief, along with the potential for freeing other international debts through the deal, comes at a critical time, as Pakistan was on the verge of defaulting on its external debt after the expiration of a pre-IMF loan on June 30.
To meet the IMF’s stringent demands, the government has committed to revising its budget, implementing new taxes, and cutting spending to generate revenue. The news of the deal has bolstered Pakistan’s dollar bonds and pleased foreign investors, resulting in the country’s shares experiencing their largest single-day surge in 15 years. However, the business community in Pakistan has expressed less enthusiasm about the deal, as they now face higher corporate and other taxes. Moreover, deeper concerns surround the agreement itself, as it adds an estimated $140 billion in debt and liabilities by June 2023, pushing Pakistan into a potential debt trap.
This new loan will make Pakistan the IMF’s fourth-largest borrower among 93 countries, accounting for $10.4 billion of the IMF’s total global debt of $155 billion. Pakistan’s external debt stands at one third of its GDP, while its total national debt is equivalent to 84 percent of its GDP. While the IMF loan provides temporary relief, it merely postpones the inevitable challenges that Pakistan must confront in the absence of significant structural reforms required to bolster its economy. The loan could aid in facilitating the transition to a newly elected national government, potentially encouraging major political parties to prioritize economic recovery as a central component of their campaign agendas. However, the multitude of political uncertainties surrounding the elections is likely to divert public attention away from the economy, at least for now. Questions loom regarding whether the federal and provincial competitions will proceed as planned or face delays and potential indefinite suspensions. The participation of new political parties and coalitions, as well as the potential return of former Prime Minister Nawaz Sharif to lead his Pakistan Muslim League, remains uncertain. The extent to which the elections will be free from violence and how the military might exert its considerable influence to sway the outcome are also matters of concern. However, much of the current uncertainty revolves around Imran Khan and his immediate political future. The crucial question is whether he and his Pakistan Tehreek-e-Insaf supporters will be permitted to participate in the elections. If the ousted former prime minister is allowed to compete in a reasonably free and fair vote, there is a belief that he could secure victory and seek retribution against his political opponents and the military establishment once in power. To prevent this, some argue that Khan should either be disqualified from running in the election or find a pretext to cancel the election on national security grounds. Many of his supporters are currently being tried in special military courts for their involvement in the May 9 riots, which resulted in widespread looting and arson across the country. While Khan himself is accused of inciting the protests and is likely to face trial on one of the 150 charges against him, either in a military court or civilian courts, he continues to rally his party and has garnered support from a fragmented media landscape. The reaction of Khan’s millions of supporters to his removal from the political scene remains largely unknown. Until the political outcome becomes clear, the difficult economic decisions made by Pakistan through the IMF agreement could be at risk.
