Political instability, which is never far away in Pakistan, has risen following this week’s assassination of the governor of Punjab province and the withdrawal of another party from the ruling coalition. For now, the Opposition appear intent on keeping the government in office rather than forcing new elections. This is the worst outcome for the economy. It means that the fall-out with the IMF will probably continue and that the fiscal deficit will stay wide. Accordingly, inflation will likely accelerate which, in turn, will force the central bank (SBP) into hiking rates again at the end of January.
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