LONDON/KARACHI: The looming political crisis in Pakistan is dashing hopes that the South Asian country could soon get its much-awaited program with the International Monetary Fund back on track and avoid debt default altogether, analysts said. Said.
Violent clashes between supporters of Imran Khan Police flared up across the country after Pakistan’s anti-corruption agency arrested the former prime minister on Tuesday.
The latest rift in Pakistan’s fractious politics comes as the country of 230 million prepares to hold closely contested elections in the autumn facing its worst economic crisis in decades. International Monetary Fund program that expires in June and lacks other funding sources in sight.
“With protesters in the streets, the IMF will be even more wary about renegotiating the loan deal,” said Gareth Leather, senior economist for emerging Asia at Capital Economics.
The turmoil has rattled the country’s economy and markets since Khan was ousted just a year ago.
Pakistan’s rupee has depreciated almost 50% in the last 12 months. Major stock indexes have suffered double-digit losses over the same period.
On Wednesday, the rupee fell to a new record low of 289.5 against the dollar. The country’s international bonds, already in deep distress territory at 32 cents, fell more than 1 cent to the dollar on the day.
JP Morgan analyst Milo Gunasinghe said there was some respite from political uncertainty while the IMF program was stalled.
Milo said, “The latest developments could reduce the chances of a political breakthrough on both sides.”
The bank recently cut its 2023 growth forecast for the country to 0.1% from 1.3% and warned of a “stagflation shock” due to a delay in IMF talks, while the central bank cut its key interest rate to a record 21%. increased so that double-digit inflation.
The nuclear-armed nation faces the risk of default unless it receives massive support. According to government data till December, the gross public debt-to-GDP ratio is 73.5%. Foreign exchange reserves of $4.457 billion barely cover a month’s imports.
“The IMF has the capacity and flexibility to help member countries in a variety of political situations,” said Reza Baqir, former central bank governor of Pakistan and global head of sovereign advisory services at Alvarez & Marsal.
“It is generally up to the country to present a credible plan of policies and financing that would credibly address members’ balance of payments problems in the face of political uncertainty.”
The armed forces remain Pakistan’s most powerful institution, having ruled directly through three coups for almost half of the country’s 75-year history.
Hasnain Malik, head of equity research at London-based Telemer, said the IMF had no reason to suspend discussions until martial law was imposed.
“However, incidents of violence likely justify postponing elections and painful fiscal cuts are credibly committed,” he added.
Violent clashes between supporters of Imran Khan Police flared up across the country after Pakistan’s anti-corruption agency arrested the former prime minister on Tuesday.
The latest rift in Pakistan’s fractious politics comes as the country of 230 million prepares to hold closely contested elections in the autumn facing its worst economic crisis in decades. International Monetary Fund program that expires in June and lacks other funding sources in sight.
“With protesters in the streets, the IMF will be even more wary about renegotiating the loan deal,” said Gareth Leather, senior economist for emerging Asia at Capital Economics.
The turmoil has rattled the country’s economy and markets since Khan was ousted just a year ago.
Pakistan’s rupee has depreciated almost 50% in the last 12 months. Major stock indexes have suffered double-digit losses over the same period.
On Wednesday, the rupee fell to a new record low of 289.5 against the dollar. The country’s international bonds, already in deep distress territory at 32 cents, fell more than 1 cent to the dollar on the day.
JP Morgan analyst Milo Gunasinghe said there was some respite from political uncertainty while the IMF program was stalled.
Milo said, “The latest developments could reduce the chances of a political breakthrough on both sides.”
The bank recently cut its 2023 growth forecast for the country to 0.1% from 1.3% and warned of a “stagflation shock” due to a delay in IMF talks, while the central bank cut its key interest rate to a record 21%. increased so that double-digit inflation.
The nuclear-armed nation faces the risk of default unless it receives massive support. According to government data till December, the gross public debt-to-GDP ratio is 73.5%. Foreign exchange reserves of $4.457 billion barely cover a month’s imports.
“The IMF has the capacity and flexibility to help member countries in a variety of political situations,” said Reza Baqir, former central bank governor of Pakistan and global head of sovereign advisory services at Alvarez & Marsal.
“It is generally up to the country to present a credible plan of policies and financing that would credibly address members’ balance of payments problems in the face of political uncertainty.”
The armed forces remain Pakistan’s most powerful institution, having ruled directly through three coups for almost half of the country’s 75-year history.
Hasnain Malik, head of equity research at London-based Telemer, said the IMF had no reason to suspend discussions until martial law was imposed.
“However, incidents of violence likely justify postponing elections and painful fiscal cuts are credibly committed,” he added.