Investors’ concerns over political uncertainty are reflected in MOODY’S latest assessment of Pakistan’s hung parliament following inconclusive elections and the consequent intense politicking for the creation of a new coalition government. Moody’s analysts have expressed “credit negativity” due to the divided public mandate and allegations of election fraud, which may cause more political instability. Furthermore, it is not surprising that the rating agency feels this way, considering the rebellious attitude of some key parties. The warning reads, “Long delays will raise political and policy uncertainties at a time when Pakistan faces significant macroeconomic challenges, particularly its very weak external and liquidity position.” Still, “parties are currently engaged in negotiations to form a coalition government.” Furthermore, the agency adds, there may be a lack of political unity or strength inside the coalition, which would make it challenging to reach an agreement on harsh yet necessary reforms. The majority of Pakistani pundits, who have warned time and again in recent weeks that faulty polls could damage the credibility of the new administration, heighten political and economic unrest, and impair the rulers’ capacity to make difficult choices and carry out the necessary reforms to stabilise and strengthen the country’s faltering economy, agree with Moody’s assessment of the post-election situation.
Many people may find it unrealistic that Moody’s claims on uncertainties will make it difficult for the next government to approach the IMF for a larger programme in April, undermine the external economy, and increase the difficulty of managing liquidity. But it can’t be completely ruled out. In an attempt to prevent a backlash from the public, the previous PDM administration postponed implementing the IMF-mandated changes for as long as possible. It is anyone’s estimate as to how powerful the incoming coalition will be. The military-backed SIFC is where some people are placing their hopes. Nonetheless, longer-term political and policy stability cannot be replaced by the SIFC. Due to political unpredictability, the Gulf countries—who have invested billions of dollars in Pakistan—have refrained from joining the market despite the SIFC. It is common knowledge that without IMF assistance, Pakistan’s finances would collapse and the government would miss its international obligations, preventing money from being accessed by other bilateral, multilateral, and commercial lenders. The country’s economic destiny will depend on how and when the new coalition handles the Fund notwithstanding the unstable political environment.