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Economy in political turmoil

Economy in political turmoil

 

The political turmoil has put the economy of Pakistan in dire strain and reports emanating from various sources suggest the country would have to get another bailout package from the International Monetary Fund. With the national elections only a few months away, disqualification of Nawaz Sharif as prime minister has shaken not only the political system, but also economy which was going on a set pattern. Meanwhile, the threats of US President Donald Trump on the behest of India has added insult to injury and the government is trying to handle the emerging situation with care. The whole country is facing slump nowadays and the current account deficit has increased over four billion dollars in the quarter ended June. The foreign exchange reserves have also declined to about $14 billion and are likely to further fall to $10 billion, putting pressure on the government to look for other sources of income. The government of Prime Minister Shahid Khaqan Abbasi is already under pressure owing to its handling of the local currency. There is pressure on the government to devalue Pakistani rupee, and the depreciation could further damage the economy. The international donor agencies as well as exporters want rupee to be depreciated, deeming that the currency is overvalued. However, the government is braving all the pressures so far to maintain the current value of rupee.

In a situation of chaos and turmoil, investors hold back their money and that is happening in the country right now. The stock exchange is shaking with hostile news and corruption cases against Finance Minister Ishaq Dar are also creating uncertainty within the business and political circles. The macroeconomic stability, which the previous prime minister claimed over and over again seemed to be evaporated and vulnerabilities are building up due to internal and external factors. Some entrepreneurs are trying to politicise the domestic factors for short term gains one of which is criticism on exchange-rate management. They are holdingthe exchange rate responsible for widening of the trade deficit andfrail outlook of the economy.The prime minister has already rejected devaluation as an option to boost flagging exports and to fix widening deficits. In his views, there are many other things to do to fix the situation.

It is hoped that Abbasi will maintain the status quo until the new government takes over and will not allow the so-called economic experts to push the economy to further deterioration. Though it is the fixed term political set up in Islamabad, but this is also a kind of transitory period and should be allowed to pass peacefully.