Umair Ali is perturbed about the financial meltdown
The Financial slide continues prevailing political uncertainty has blown into a full-fledged political crisis that has brought the country. of economic collapse. The high level and scale of social and political confrontation has badly affected the financial aspect of the country with the Pakistani currency tumbling down and stock markets badly sagging. The crisis directly impacted the Pakistan Stock Exchange that shed 1061.98 points in the first hour of trading and after plummeting 1,111.07 points down 2.55 per cent and eventually closing down at 819.14 points or down by 1.88 per cent. The horrible decline that was dubbed as a bloodbath occurred after the government announced no increase in petrol prices for now and by doing so it went back on the undertaking it gave to the IMF for getting its programme resumed. The resumption of IMF has become of vital importance to the financial survival of the economy of Pakistan.
Interestingly, the coalition government is taking a populist line that it had criticised the former PTI government for and, with its eyes on future election, is playing the political card whereby it can claim in front of the electorate that it quit government for protecting the interests of people. This policy is the obvious result of the visit PM Shehbaz and most of his cabinet ministers paid to PMLN supremo Nawaz Sharif in London who advised them to refrain from taking measures that may become indefensible on election trail. They also want to avoid the negative fall-out of pre-conceived financial traps set by the previous government that are bound to harm the current dispensation.
On the other hand, elements supporting the forces of status quo are exerting pressure on the government to take difficult decisions to bring short-term stability in the market by emphasising that the path for the IMF programme needs to be paved immediately by removing subsidies on petroleum products, otherwise it would be difficult to restore investor confidence. They maintain that the recent downturn in stock market is due to delayed government decisions on economic issues. They point out that financial institutions had to step up and support the stock market. They mention that the incoming monetary policy in which reportedly an increase of 2 per cent in interest rate is expected and that if this happens then there are no prospects of the stock market to recover.
The difficulty is multi-pronged as both the stock and currency are in free-fall and there are no apparent solutions to this downward trend. The result is that the rupee has witnessed the fifth day of losing its value against dollar causing widespread confusion. Dollar has climbed past Rs.200 and this devaluation has come just a week the rupee hitting new lows. This fall is ascribed to the country’s rising import bill and widening trade deficit. The fall is certainly reflected in the government’s indecision to take hard financial decisions as is evident by the fact that when the new government took over on 11 April the dollar was valued at Rs.182.3 and since then the rupee has lost Rs.11.4 or 6.2 per cent of its value. It is reported that since the beginning of the current fiscal year on 1 July, 2021, the rupee has lost 18.17 per cent of its value against the dollar. To aggravate the situation is the depletion in foreign exchange reserves that have touched $10.3 billion considered the lowest since June 2020. The import cover, which shows the ability of a country to pay for its foreign purchases in the international currency, is now down to a meagre 1.54 months.
Currency commentators emphasise that the government needed to restrict non-essential imports and bound exporters to bring in revenue from exports. The exports have doubled than the imports making it highly tenable for the government to restore the balance the shortfall by the remittances sent by overseas Pakistanis. The former government of PTI had announced a four-month freeze, until 30 June on petrol and electricity prices on 28 February as part of a series of measures to bring relief to the public. The financial difficulty this decision gave rise to could be gauged from the fact that the price of petrol will have to be increased to Rs.245 per litre according to the agreement done with the IMF. This is a huge rise and may unnerve any government let alone a shaky coalition administration that does not know where it stands politically. It is quite obvious that the altercation is located somewhere else and till it is settled no progress could be made about the change in economic situation. This impasse is surely going to retard both the stock market and besieged rupee as these issues are linked with the larger problems confronting the decision-makers. TW