design: Ibrahim Yahya
Pakistan’s delayed economic reforms and privatization program may become more difficult ahead of a possible coalition government, as no political party has won a clear majority in Thursday’s general election.
The new management is expected to choose old solutions that have already been tested for the last 30 to 40 years. In one of the easiest measures, he will raise energy prices instead of making politically tough energy reforms. Therefore, inflation will continue to remain high. According to experts, the Pakistani rupee is expected to remain stable against the US dollar and other major currencies in the short term. However, the stock market and Eurobonds may come under pressure amid heightened political uncertainty as it is unclear who will form the next government.
Speaking to The Express Tribune, independent analyst Adnan Agar was of the view that the Pakistan Muslim League-Nawaz (PML-N) had an economic group as opposed to the Pakistan Tehreek-e-Insaf (PTI) and the Pakistan People’s Party ( PPP).
However, PML-N’s previous finance minister Ishaq Dar had a “hostile relationship” with the International Monetary Fund (IMF), he recalled, adding that Dar would continue to follow his old policies of keeping the rupee-dollar exchange rate under control. and breach of terms of a new loan program.
“Whoever forms the government will approach the IMF to enter into a new program after receiving the last installment of $1.1 billion under the current standby agreement to achieve economic stability and growth and continue repaying the external debt without any interruption,” he said.
Agar stressed the dire need for Pakistan to adopt tax reforms like taxation of agriculture and real estate sectors to increase revenue collection and bid farewell to IMF forever. However, he raised a question “how can the elite (in government) be taxed”.
They will raise electricity and gas prices further to deal with the cyclical debt issue instead of dealing with line losses and power theft. They may continue to tax businesses already suffering from high levies rather than go after the rich, said Agar, who is also Director of Research at AA Gold Commodities.
Chase Securities Research Director Yousuf M Farooq said Pakistan cannot afford another political uncertainty at a critical time when strong leadership was needed to pull the economy out of crisis.
“Pakistan’s stock market and Eurobonds will remain volatile if political temperatures do not drop by Sunday night,” he said.
He pointed out that the PPP had a history of supporting economic reforms and would continue to do so in the future. However, PPP Chairman Bilawal Bhutto-Zardari has openly opposed the privatization of state entities, he said, but added that the privatization program can remain on track under the platform of the Special Investment Facilitation Council (SIFC).
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Farooq predicted that inflation will slow from February onwards, providing scope for a cut in the central bank’s policy rate, which will gradually support business and economic activities.
Tresmark said in a commentary that while the business community was worried about the mandate split and political uncertainty, “currency traders see the rupee’s range remains bound over the next 15 days.”
“As forward premiums are attractive, we will also see more forward sales from exporters, but all in the 15- to 60-day timeframe.”
With the elections now over, the market expects more bilateral and multilateral financing and the third review of the IMF will conclude with the disbursement of the loan tranche after some potential hiccups.
“Having said that, upside (rupee) is also limited and any appreciation above the 276 level will start to hurt the country’s exports,” Tresmark said.
Speaking on Bloomberg TV, former SBP governor Reza Baqir said the other day that securing a new IMF loan program and controlling inflation will remain the two key challenges for the new government.
Pakistan has significant economic challenges, one of which is how sustainable its debt is. Pakistan does not have access to capital markets (to raise new financing through Eurobonds) and one of the key priorities for any new government will be how to restore confidence in its economy, he said.
“I think the number one challenge will be how to put the economy on a sustainable footing and how to manage its relationship with the IMF,” Baqir said.
“The first objective will be how does Pakistan make a fairer tax system? How does it bring people and privileged classes, who avoided taxes, into the tax net instead of continuing to squeeze those of the middle class and wage earners? How can Pakistan expand its base?”
Published in The Express Tribune, February 11u2024.
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