Forecasting how the annulment of National Reconciliation Ordinance will impact Pakistans economy isn exact business. One thing, however, seems certain; the economy will take a backseat as political drama finds its climax over the period.
A lot of it, of course, is a whip of complex and often inexplicable ambiguities at this point. But this very vagueness is likely to rattle markets - keeping investors on the sidelines at the least, if not on the sell side.
There are risks that rupee will weaken further against the U.S dollar from near record low levels at present, as NRO beneficiaries try to wiggle their money out of their frozen accounts, possibly in the name of their benefactors and families, while they themselves try to emulate Hamesh Khan in walking past the ECL.
Meanwhile, if political imbroglio worsens - as seems likely - Pakistans country risks will rise, threatening the success or increasing the cost, at the least, of its Eurobond issue, planned for early next year.
Pakistan is already fourth on the list of high default probabilities with a CDS mid-spread of 737.5, according to CMA Vision - a London based credit information provider and any political brawl will likely unnerve bond investors.
If thats not bad enough, worsening political risks rankings will do the rest to shoo long-term investors from the country resulting in lower FDI inflows. According to the latest political risk rankings released by Maplecroft - a firm that assesses global risks for businesses - on Thursday, Pakistan dropped to 11 - at extreme risk - from 12th last year.
And while it may be too early to say, but the pace of growth in remittances can also potentially ease, given fears of political infighting in the backdrop of fragile security situation and the possible UAE slowdown after Dubais debt story.
But perhaps these short to medium term pains would be necessary for long-term gains.
The judiciary action might help thwart at least some attempts of corruption from this point onwards and help meet the condition of "maximum accountability" demanded by U.S Congress for American aid to Pakistan, planned to be channeled through federal and provincial governments.
Second, a strong, transparent and independent judicial system can also repose confidence on the legal plain of the countrys overall economic framework. And lastly, just in case if those vice funds parked outside the country are brought back then perhaps the government won need to borrow more. No harm in wishful thinking, is it.
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