The second-largest member of Pakistan's ruling coalition has reversed its decision to join the opposition, averting the potential collapse of the nation's government.
The move by the Muttahida Qaumi Movement, announced after the government backed down on unpopular economic measures, eased the political crisis facing Pakistan. But the government's concessions could prevent it from receiving billions in international loans, exacerbating the country's already precarious financial position.
The MQM's decision came a day after Prime Minister Yousuf Raza Gilani said the government would reverse unpopular fuel price hikes that partly prompted the party's defection. He also said during a visit to MQM headquarters in the southern port city of Karachi that the government would postpone a new tax system meant to raise more revenue.
"Our unity will benefit both the country and the national interest," said Gilani, while standing next to senior MQM leader Raza Haroon. "We can steer the country out of this storm."
Haroon said the MQM had agreed to rejoin the coalition for the sake of democracy and the country's well-being. But the party's demands that the government reduce fuel prices and hold off on tax reform will deepen the country's deficit, a development that could lead the International Monetary Fund to withhold loans desperately needed to stabilise the economy.
IMF spokeswoman Caroline Atkinson criticised the fuel price decision, saying Pakistan needed to reduce the amount of money it spends on energy subsidies.
"They're inefficient and untargeted so that the bulk ... of the benefit from the energy subsidy goes to higher-income individuals and large companies," Atkinson said.
US Secretary of State Hillary Clinton also criticised the decision, saying it was "a mistake to reverse the progress that was being made to provide a stronger economic base for Pakistan."
Political analyst Mosharraf Zaidi said the ruling Pakistan People's Party may have survived this crisis, but it was severely weakened and unlikely to get much done legislatively in the two years remaining in its term.
He said: "There's a good chance it'll complete its mandated tenure, but it will do so literally continuing to stumble and sputter from one crisis to next."