The drama unfolding in Islamabad since the submission of a no-confidence motion by the opposition political parties to topple the prime minister through a prescribed constitutional method, and Imran Khan’s refusal to allow the process to take its logical course does not inspire much hope of a resolution of the political crisis any time soon.

If the Saturday morning parliamentary proceedings called for a vote on the no-confidence resolution on the order of the Supreme Court are any sign of the things to come, we may still find the ongoing political impasse in the country holding even today and the matter taken back to the judges for a fresh ruling. On the face of it, it was clear that Prime Minister Imran Khan isn’t ready to step down despite losing the confidence of the majority in the House, and is willing to drag his feet, irrespective of the costs to the country and its economy.

The current political crisis has taken a massive toll on the economy, with no one in the administration willing to take the required decisions in such a situation. Even the State Bank of Pakistan (SBP) after a significant delay, hiked its key policy rate by a huge 250 basis points (bps) to 12.25 per cent following an emergency meeting on Thursday in a bid to arrest increasing risks to the economy related to escalating inflation and deteriorating external balance. Although the rupee has begun recouping some of the ground lost over the last month, and the stock exchange recovering after the Supreme Court, in a landmark ruling, declared the cancellation of the no-confidence vote against Prime Minister Imran Khan as well as the subsequent dissolution of the National Assembly ‘contrary’ to the constitution, the recovery is not likely to last long unless a stable government is in place.

There is no doubt that the economy will have to bear a significant cost of the extended period of political instability but it will be worth paying if it makes Pakistan stronger democratically paving the way for long-term economic stability

The Monetary Policy Committee (MPC) of the SBP rightly pointed out that a “reduction in domestic political uncertainty and prudent fiscal policies should help ensure that Pakistan’s robust economic recovery from the Covid pandemic remains sustainable”.

“Since the last MPC meeting, the outlook for inflation has deteriorated and risks to external stability have risen,” the central bank said in the statement, adding that “heightened domestic political uncertainty has contributed to a 5pc depreciation of the home currency. This, in addition to a number of external factors, including the Russia-Ukraine military conflict and the expected, quicker increase in the US interest rates, has compelled the bank to revise the key lending rate, the SBP said.

As things stand, the price inflation is projected to stay elevated at above 11pc and the country’s fragile foreign exchange reserves have already depleted to $11.3 billion. Export refinance is also raised from 3pc to 5.5pc and the scope of cash margin requirement has been extended to imports of more finished goods to slash the country’s burgeoning import bill because of higher global commodity prices, including crude, according to the central bank.

The International Monetary Fund has already stopped funding to Pakistan under its $6bn Extended Fund Facility as it waits for the political drama to end, and the installation of a new government to deal with. China, according to some senior officials, is also waiting for ‘stability to return to the country before rolling over its debt of $2.3bn’, which matured and was paid back a few days ago. The political situation is also contributing to delays in a planned $1bn green bond sale.

It is quite clear that it will not be easy for the future government of the country to put the economy back on the road to stabilisation, and the people will be asked to give more sacrifices. We may probably see more stringent austerity policies for the economy in the budget for the next fiscal year unless we are able to get emergency assistance from the global lenders and friendly countries.

Every event leading to political instability and uncertainty such as seen in recent weeks imposes certain costs on the economy and the people, both in the short to medium term, and, sometimes, in the longer term. There is no doubt that the economy will have to bear a significant cost of the extended period of political instability caused by the opposition parties’ move against the prime minister and people are in for tougher times going forward. But it will be worth paying if it takes the country closer to a stronger democratic dispensation and longer-term economic stability.

Published in Dawn, The Business and Finance Weekly, April 11th, 2022