A deepening political crisis in Pakistan has spooked investors and risks fresh street protests amid a corruption probe into Prime Minister Nawaz Sharif.
Sharif's fate rests in the hands of the Supreme Court after an investigation found evidence of possible corruption, calling into question the legitimacy of his family's accumulated wealth.
The probe recommended cases to be filed against the prime minister and his three children for failing to account for foreign assets. It highlighted alleged document forgery and "irregular movement of huge amounts" in loans and gifts as well as a significant gap between the "declared sources of income and the wealth accumulated" by the ruling family.
If an accused cannot account for his sources of income, "the court shall presume, unless the contrary is proved, that the person is guilty of the offence of corruption," the report reads.
Sharif, who has pledged to step down if found guilty of graft by the court, has denied any wrongdoing. The prime minister will challenge the investigators' findings in court, the minister for planning and reform, Ahsan Iqbal, said on Monday.
Pakistan's key stock index slumped 4.7 percent to a seven month low on Tuesday, its biggest decline in more than eight years. The graft report delivers more bad news to a government already facing a widening current account deficit and currency crisis.
The recommendations against Sharif "came closer to a worst-case scenario," according to a report by Karachi-based BMA Capital, "increasing political uncertainty in the near-term".
The Supreme Court will hold a hearing into the findings on July 17. If it accepts the charges it could lead to Sharif's resignation or disqualification as a member of parliament.
It comes a week after Pakistan was hit by the biggest plunge in the rupee's value in nine years, said to have been the central bank heeding calls to weaken the currency to allow some relief to exporters. Instead, the finance ministry denounced the decline and swiftly filled the vacant position of governor. By then the State Bank of Pakistan had revised an already widening current account.
"The government is distracted and is lacking focus," said M. Abdul Aleem, secretary general of the Karachi-based Overseas Chamber of Commerce and Industry, which represents multinational firms including Barclays Plc, Akzonobel Pakistan Ltd. and Proctor & Gamble Co. "Foreign investors are in a state of confusion and uncertainty because they are looking for some policy control and show of governance."
The past few weeks have dealt a blow to the credibility of Sharif's administration. His government had ushered in a period of relative stability after taking office in 2013, with the economy expanding at a rate of over 5 percent annually. That came with the help of an International Monetary Fund bailout aimed at resolving a balance-of-payments crisis. China is also financing infrastructure projects across the country valued at more than $50 billion.
But the economy has also shown signs of vulnerability. Pakistan's bread-and-butter exports such as textiles are waning, some of which has been blamed on a managed currency the IMF said last year was overvalued by as much as 20 percent. That has also helped push the current account deficit wider to $10.6 billion in the 11 months through May.
The latest episode has highlighted the continuing influence of the military, which has ruled Pakistan for much of its 70-year history and continues to hold sway over issues such as foreign policy, the economy and domestic security.
With a third of the Supreme Court-appointed investigative team comprised of military figures, the probe itself has been seen as a way of checking Sharif's rule.
"This point should not be overlooked as it's a clear indication that the military still retains significant control over governance," said Shailesh Kumar, a senior Asia analyst at Eurasia Group in New York.
"This is an example of the civilian government being kept in its place."
Yet with no clear alternative to Sharif, "he remains the front runner for next year's election," Kumar said.
The prime minister's daughter, Maryam Sharif, rejected the investigator's report in a tweet: "Every contradiction will not only be contested but decimated" in the Supreme Court, she wrote. "Not a single penny of public exchequer involved."
Whatever the court decides, the episode marks the emergence of political risk in Pakistan, according to the chairwoman of international relations at the University of Karachi, Shaista Tabassum.
"Each side is in a mood to oppose and agitate against the Supreme Court's decision if it does not favor them," Tabassum said. "The street politics of agitation will start."