The first indications that a hung parliament will cause economic tremors in Pakistan have become apparent. An announcement from the IMF made it clear that the board’s staff would not be visiting the country to negotiate a $1.10 billion tranche until a new government was formed.
Pakistan is currently party to a ‘Stand-By-Agreement’ that the IMF signed with the PDM government back in June 2023. The SBA worth over $3 billion had been signed after Pakistan and the IMF failed to successfully conclude a programme that had been marred first by the imposition of a petrol subsidy by Imran Khan’s government, and later by the bull-headed negotiation tactics of PDM’s finance minister Ishaq Dar.
The SBA had been signed as a sort of bridging agreement that would see Pakistan through its election period so that whoever came to power could then start negotiations anew with the fund. Two tranches of that $3 billion agreement have been made already. But now the fund is insisting that even the third tranche of the SBA will be negotiated by the new government.
The problem is Pakistan’s politicians, military establishment, analysts, journalists, and population are as confused as the IMF as to what shape the new government will take. The PTI, which by all accounts has won the election and dealt an embarrassing blow to the PML-N, is handicapped by having their electoral symbol stripped. Despite being the largest force in parliament, they might find it hard to form a government.
On the other hand the PML-N and PPP are already in talks to figure out a power sharing formula that works for both of them. Suggestions of split terms and different offices being distributed are the talk of the town. By the looks of things, it might be Shehbaz Sharif taking over the Prime Ministership once again. Will the IMF begin negotiations where they left off? And if so, will PDM 2.0 have the foresight to avoid giving Ishaq Dar another turn blustering about in Q-block?
All guesses are equally plausible in this environment. What we do know is that the confidence of the markets is dipping because of the political uncertainty with the PSX behaving bearishly. On top of this, our international lenders are waiting and watching what becomes of this sorry state of affairs. The constitution demands that a leader of the house be elected within three weeks of elections. Will that be enough time for all the wheeling and dealing going on?
Already there is plenty of political instability. All parties are claiming victory in this election. Resignations abound and candidates are rejecting their own victories because of what is being called very obvious rigging. What we do know is that there are plenty of economic challenges that await Pakistan. Only a politically stable government with a legitimate mandate can hope to crack them.