The fever breaks

THE fever is breaking. Rarely have I seen so many indicators of the economy reverse their momentum in tandem, and so fast. From the start of this week, Pakistani bonds in international markets have rebounded from default level pricing to normal pricing, inflation peaked, the foreign exchange reserves rose by $500 million, the trade deficit fell, the stock market registered the sharpest single-day jump in its history and the exchange rate rose by Rs10 with possibly more gains to come. Of course, not all of these changes were linked to the IMF deal announced last week. Inflation and the trade deficit data, for example, was for the full month of June. But the reversal in bond pricing, the stock market rally, the exchange rate adjustment and possibly the reserves increase, seemed to be connected with the successful completion of the IMF deal. For the past 18 months, Pakistan has been in the throes of a turbo-charged power struggle that paralysed decision-making at the top while the economy veered dangerously close to a situation popularly being described as ‘default’. This toxic combination — massive political uncertainty coupled with rapidly depleting foreign exchange reserves — was fuelling a sense of drift. To outsiders, it looked like Pakistan was veering towards a cliff and nobody was in charge.