The economic narrative abroad – ranging from ‘we are in a recession’ to ‘no, we are not’– seems to be shifting with each new data release. And the economic narrative here at home, being increasingly influenced by the political climate – seems to be changing every fortnight or so. These days it’s the green-shoots of macroeconomic stabilization sprouting all around the garden – thanks, in part, to the reducing degree of political instability.
Fundamentals don’t lie. Seeing how imports have been drastically cut down to size by the new government to reduce the current account deficit and sensing how the IMF, the IFIs and the usual list of friendly countries have come together again to lend BOP support, the market players – ranging from exporters and importers to bankers and forex dealers – can see the writing on the wall vis-à-visBOP, forex reserves and PKR.
The sharp shift in economic sentiment in August so far – what with PKR substantially recouping its losses, PSX rallying again and the business community feeling relieved –may have also received a strong boost by the fact that the fresh wave of post-by-elections political uncertainty of mid-July (which brewed for about a fortnight) thankfully did not linger on. A couple of well-timed political moves by the state may have finally lent the economy some semblance of political stability within the existing chaos.
Pakistan’s political history shows that it is not ideal for the Federal-Punjab relations to have rivals ruling in Islamabad and Lahore, as it raises the specter of one party trying to destabilize the other and thus provoking a vicious cycle of vengeance. But it appears that there is some sort of political balance – a sort of coexistence – that the PDM government in Islamabad seems to have reached with its rivals’ PTI-led government in the Punjab province. Why? Because there is political payoff for all sides to make it work.
For instance, PM Shehbaz and PML-N need more time in the government to reclaim their political capital, which has been depleted mercilessly on raising fuel and electricity prices. For former PM Khan, ruling Punjab, which is the biggest prize of them all, creates stakes for PTI in the country’s political heartland again, ahead of what looks like a potentially-fierce electoral clash sooner or later. And as for the eager new Punjab CM, he also needs time to get some projects going and shine his governance credentials.
Moreover, the affected institutions could also use some necessary time-out between political rivals. This is not to say that tomorrow all will be hunky-dory among political parties. Far from it, one may see calculated moved on each side to keep the other in check and protect their own political interests. Occasionally, political temperature may reach a fever pitch, too – but overall, it appears that there is now high likelihood to manage political heat at tolerable levels so that economy can come out of the woods.
For how long this relative, fragile state of equilibrium will last before political noise reaches high decibels again is unclear. After all, PTI is still not willing to talk to PML-N on practical matters (leave alone discuss the theoretical ‘charter of economy’), even as the latter looks keen to pursue former PM Khan’s disqualification. But if the existing context held up for a couple of more months, it will raise the likelihood of elections taking place sometime in 2023 than later this year, thus further boosting economic sentiment.
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