Macro Analysis /

Pakistan Strategy – Politics: Something has to give and soon

  • The Supreme Court has ruled that members cannot vote against party lines. This adds pressure on PML-N and boosts PTI

  • The PML-N can stay in power till August 2023 and take tough economic decisions, or cut losses and call fresh elections

  • The IMF programme is a must but only new elections may usher in the necessary clarity for a lasting rally at the KSE100

Raza Jafri
Raza Jafri

Executive Director, Research

Intermarket Securities
18 May 2022

In a 3:2 split decision, the Supreme Court has ruled that members cannot vote against party lines in parliament. The immediate implication is that elections for the Chief Minister Punjab may have to be conducted again, since PTI dissidents had provided the swing votes for PML-N’s candidate. The lasting outcome is that any party that secures a 50% simple majority going forward will purportedly be immune from a no-confidence motion. The PML-N is consulting with allies and seeking legal opinion on the decision.

The judgment does not seem to directly affect the Center, as the successful no-confidence motion against ex-PM Imran Khan did not rely on dissident PTI votes. However, it adds to pressure on the PML-N and boosts the PTI, already riding a wave of popularity after Mr. Khan’s ouster. The PML-N now has to decide whether to see out its term until August 2023 and take politically tough decisions such as the removal of fuel subsidies, or cut its losses and call fresh elections. Some news reports indicate that the government has decided to stay but the political situation remains fluid and this could yet change.

The last few weeks have been characterized by continued political noise and sluggish decision making, but time is running out with the import cover fast approaching 1.5 months. Inaction has resulted in the PKR weakening by 5% vs. the US$ and the KSE-100 losing 6% this month. We believe there is no viable option but to revive the stalled IMF programme, with talks commencing on Wednesday. A successful IMF negotiation can help restore confidence and enable Pakistan equities to bounce back. However, a lasting rally will likely require greater medium-term clarity on politics and reforms, which may only come through after the next elections – whether early or as per schedule.