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Fine, it was the single biggest one-day jump in the stock market in 15 years. But is it really that unbelievable, even unusual, for the benchmark index and local currency to explode to the upside after a very pleasant, and very sudden, surprise? Especially when failure to conclude the EFF (Extended Fund Facility) was really supposed to mean sovereign default?

What is unusual, even unbelievable, though, is the fact that the PM was able to secure the $3 billion lifeline just when the EFF crashed.

Everybody knows that happened because Islamabad was just unable to implement all the harsh “upfront conditions” that the Fund demanded – structural adjustment and all that – and the new SBA (standby agreement) is also, from what little we know about it so far, about just that – structural adjustment and all that.

So what did the PM promise the IMF chief in Paris that clinched the SBA and made for the perfect optics? We won’t know till, rather if, the IMF board greenlights the facility on 12 July 2023, of course, but it has to be more than everything the finance ministry threw into the EFF and still fell short.

Let’s not forget that EFF failed after all the tax and interest rate hikes and subsidy cuts that ate into businesses and household incomes, which means it brought much misery to the people and still didn’t get the government all the money.

That begs the obvious question of whether markets and business groups clapping for the PM for snatching solvency from the jaws of default continue to cheer if it turns out that all of them would have to offer many more pounds of flesh for the SBA than the EFF, and still have no guarantee that it would be successfully concluded?

The business community might be the first to lose their smiles. BMG (Businessmen Group) chairman Zubair Motiwalla, for example, welcomed the SBA because it would “bring economic stability besides restoring investor confidence, stability in the rupee-dollar parity and positive impact on the stock market”.

Yet he also feared, in the same breath, that “the bailout program may increase the cost of production”, which it most definitely will, and hoped that “the interest rate will also be brought down”, which most certainly will not; otherwise SBP (State Bank of Pakistan) would not have hiked it by 100 basis points in an emergency meeting just days after keeping it on hold in a regular, scheduled meeting.

The most likely best-case scenario is a few-month bull-run in Pakistan’s Eurobonds and equities as sovereign risk premium compresses, the threat of default is kicked further down the road, and China, Saudi Arabia, the UAE, also institutions like ADB, give fresh loans.

But then reality will start to set in because there is still no way the country can pay back $23 billion in external debt in the ongoing fiscal year. Or, for that matter, the $77bn due in the next three years; hence the red flags from both Moody’s and Fitch even as local markets were drowned in euphoria.

Sadly, the government has, and cannot have, anything better on the table than just hope that it will stay on one IMF program or another, which will mean more loans from other bilateral and multilateral sources, which, in turn, will make enough creditors roll over loans year after year to keep escaping default.

And it’s a cruel irony that each tranche of each program will require it to tighten the screws on the people of the country, who make up the world’s fifth-largest population group and had nothing to do with all the wasted and/or looted foreign aid that got the elite penthouses and luxury real estate in Europe and left ordinary Pakistanis with sub-Saharan levels of human development.

The SBA has brought wonderful headlines and made the PM look great. But it won’t help the economy any more than one more bandaid can stop blood from multiple gushing bullet wounds. Its conditions, whatever they turn out to be, are sure to make people’s lives a lot more miserable in return for the faint hope that somebody will give us more money and somebody else will roll over some of our loans to keep us above water.

Pakistan needs a hard reset. With or without the SBA, or even the IMF, it’s well past the point where jokers masquerading as ministers, who ran it into the ground, can steer it forward. It’s also not possible for the 5-year cycle of so-called representative government, where each successive administration takes apart the previous one’s policies, to provide the kind of solutions that are needed.

Yet what that hard reset might look like will have to be the stuff of another column.

Copyright Business Recorder, 2023


Comments are closed.

zaya zaya Jul 06, 2023 11:29am
You said the obvious but is it obvious to the rulers who gushing as if they achieved something in 14 months yet the consequences of this SBA are yet to be felt; just wait for the balloon to burst!
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KU Jul 06, 2023 11:35am
It’s only a standby agreement, and with conditions that will be demystified in the coming days. And how is the stock market rise an indicator of all is well economy or will be in the future? It’s like saying, since the property/realtor market has buyer/seller confidence, our economy is rocketing off to Jupiter. Pakistan is suffering because of its leaders and continues to thrive on misconceptions, the outcome will be suffering for the people.
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Ahsan Iqbal Chor Jul 06, 2023 11:53am
As if these guys care, they only get a hard-on from getting their names in the paper and have people worship them but face ED at home and in every other matter
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Nabil Jul 06, 2023 01:32pm
Worst scenario,our "JOKERS" are happy attaining SBA
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Adnan Aziz Jul 06, 2023 05:14pm
I agree. The downward slide will continue because we have lost the capacity to learn - in fact the capacity perhaps we never had. Tighten your belts O (common) man. You are destined to despair as long as these jokers are around.
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Haroon Jul 06, 2023 05:29pm
This column feels a bit empty. Something is missing...
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wanker Jul 06, 2023 09:33pm
@zaya zaya, bubble not balloon.
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zh Jul 06, 2023 10:21pm
Please stop sugar-coating the meeting between SS and International Monetary Fund's Managing Director Kristalina Georgieva. SS did not obtain IMF funding through negotiation. The definition of negotiation is "mutual discussion and arrangement of the terms of a transaction or agreement." There was absolutely no discussion; it was purely a surrender to the terms of IMF by SS after 9-months of stupid foot-dragging.
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Tariq Qurashi Jul 07, 2023 10:55am
There was once a handsome man who dressed in the latest fashions, ate at the best restaurants, and regularly went on holidays abroad. Unfortunately he regularly beat his wife black and blue, starved his children, dressed them in rags, and didn't send them to school. He regularly borrowed money from all his neighbors and spent the money on himself. He never did an honest days work in his life, but since he was quite aggressive, no one had the courage to confront him, and he was quite happy to continue life as though everything was normal. Pakistan reminds me of this story.
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Ali Jul 07, 2023 03:40pm
With China coming to Pakistans rescue at every turn - and not letting it default- left IMF and westerners with no option but to keep Pakistan hooked and stop from further going in China's lap.
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