Mr Market clearly didn’t need more than a minute to believe Finance Minister Miftah Ismail when he said that the revival (almost) of the IMF programme had ruled out immediate sovereign default. Equities duly roared, even the rupee snapped its relentless freefall and credit default swaps (CDS), which measure the risk of default on international payments, were also cut by half in one day as the nation celebrated its 75th independence day.
There will be another uptick when the money actually arrives in the State Bank’s vaults at the end of the month, no doubt, even though it would be pretty well priced in by then. Because the market floor has thirsted for such rain for so long that it would gladly take another shower of it.
But when the market gets hungover from this celebration, it will realise that the Bretton Woods twins’ green light will kick the can further down the road, but it will not do much in the long run about the current account deficit, which feeds into the fiscal black hole that symbolizes the economy. Not, at least, as long as a parasitic elite continues to eat off the fat of the land.
And it’s not as if default risk has been completely ruled out. The CDS fall was impressive on the face of it, but it’s still only come down from 34.86pc just a few days ago to 17.44pc now; still effectively flashing an SOS signal in the international market, especially when you consider that it was around 4-6pc just a few months ago.
The yield on the $1b five-year Third Pakistan International Sukuk, too, dropped 28.25 percentage points from its ridiculous peak of 49.75pc, but it’s still at 21.5pc. And whether or not this trend will enable the government to raise foreign exchange by issuing more bonds remains to be seen.
Risk averse traders – 90pc of the stock – tend to give such markets a wide berth because when crucial indicators can drop so fast so soon, they can rise too. And it’s usually around the time when sovereigns are struggling to stay afloat. Events that unfolded from PTI’s opportunistic sabotage of the IMF programme go to show how dangerously close we came to default this time. Perhaps things like CDS cropped up at the corps commanders’ meeting as well, and mobilized the army chief into making distress calls to the US and Gulf allies for IMF’s money and friendly-country loans.
It worked. But it took an arm and a leg to revive the Extended Fund Facility (EFF). What are we going to do about the conditions for the next tranche? No administration is going to want to sell that to the public when a very crucial general election is just around the corner. And that explains the political trauma that the country is experiencing on top of the economic collapse, and one is feeding into the other. This year the politics also descended to its worst, arguably, since the fall of Dhaka more than 50 years ago.
There’s more. It also seems that suddenly we’re not as important for the rest of the world as in the days of the Cold War and America’s so-called war on terror. So far we’ve been too crucial to fail, too nuke to fail, and all that, but now there’s no urgent need for us. And any strategic, mutually beneficial deal that could be worked out with Washington was torpedoed by telegraphing the iconic “Absolutely not!” ahead of time. So much for “permanent interests”.
With the economy barely breathing, IMF not relenting, the political elite too occupied with its own self-interest to care and the West no longer caring for us, the smell of both political and economic collapse is now in the air. We need to pay back our debts, but there’s no order in government, and Uncle Sam will no longer make phone calls for us.
Maybe this will be remembered as the year that the wolf really came to the door and didn’t go away; Pakistan’s annus horribilis, so long in the making.
Copyright Business Recorder, 2022
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