Business

On the edge: Cyclical, immediate challenges Pakistan faces amid deteriorating economic situation

Published

2 years ago

Farwa

I cannot count the number of times in the past month I have heard the term “Pakistan is at a crossroads”. While — like almost every other Pakistani — I may have my opinions on the various conspiracy theories doing the rounds, that is not my topic today.

As an investor in the global emerging market space for close to 30 years, I just want to draw some attention to the seriousness and immediacy of the dire economic issues that Pakistan is facing. Some of these are structural, like water/climate change and population growth etc., and while these are critical to the long-term survival of the country, today I want to talk more about the cyclical and more immediate challenges that the country faces.

I am not looking to ascribe blame to anyone. The fact is that Pakistan has pursued a seriously flawed and failed economic policy for decades and this has now brought it to within a hair’s breadth of collapse.

The unique economic environment created by the coronavirus pandemic and the global economic reaction that followed only exacerbates the challenge.
In fact, in my 30 years, I don’t think I have seen as hostile an environment for weak emerging economies as I do today. Sri Lanka has been the first domino to fall, but Pakistan, Egypt, Turkey, and several others are not too far behind. These weak economies face a perfect storm, brought about by rising commodity and energy prices, a strong dollar, declining central bank liquidity and an increasingly polarised and less “global” world economic order.

In such a hostile environment one would expect that if a regime is to be replaced it would be done by one that understood the challenges, had a ready and devised plan, and had the political will to execute that plan. Unfortunately, it has not been the case.

In fact, it is quite apparent that there has been a serious miscalculation as to the challenges the country finds itself in. It appears that the assumption was that “bad governance” and economic missteps of the previous government were the main reason that Pakistan found itself in the predicament that it was in.

So, now we find ourselves in a situation where severe economic difficulty and distress have been amplified by unnecessary political uncertainty.

While the PTI government did nothing to reverse the economic slide that was perpetuated by previous regimes, the fact is that Pakistan’s current economic mess is primarily a combination of the structural weaknesses that have always existed together with a unique global environment that is causing havoc in most weak emerging economies.

The talk today is about raising energy prices or not, as if this one decision will resolve all the issues. This will only kick the can down the road, and that too only if the IMF and the GCC countries come through with the required support that is expected once the energy subsidies are withdrawn.

But that is like putting a band-aid when surgery is required. Pakistan has lived well beyond its means for most of its independent life, but this has never been more true than in the last 20 years.

Credit rating agencies like S&P Global and Moody’s have a concept called a “sovereign ceiling” this essentially means that at the end of the day your credit rating is only as good as the country where you are based. The biggest example is the current environment in Ukraine.

Ukraine is home to some of the globally strongest and most profitable companies in areas like steel, poultry, and grain production, if these companies were based in countries like Germany or the US, they would be rated high investment grade.

However, their ratings are constrained by the fact that Ukraine has a low “junk” rating, so is the case with many companies in Turkey, and in other countries in the Emerging markets. At the micro-level, this concept applies not only to corporations and banks but also to individuals.

Just because you are an affluent individual living in Pakistan, does not mean that you can afford the same lifestyle that you could in the US or the UK, and if you try to do that, the country pays the price.

My goal as a Pakistani is to live for the day when we don’t “celebrate” IMF and GCC aid packages. But that can only happen if we start living within our means, and try to extricate ourselves from the debt spiral we are in. This will take very hard decisions, let me give you a few examples.

A ban on most luxury items, including large engine cars and SUVS, in fact, given the current energy environment there should be an immediate ban on even the current use of these vehicles in Pakistan.
At least while energy prices are up here, closing all consumer-related commercial establishments by 7pm on weekdays in order to limit energy usage.
Taxing land and agriculture.
Working on renewable energy and many more.

Some of the above measures can be taken immediately, some will require legislation, but all will require political will. A seriously miscalculated (in my view) political experiment has brought Pakistan close to the edge of an economic cliff, the next few weeks/months will decide if we are going to fall off or not.

— The author is a Pakistani American who is the Chief Investment Officer and Managing Director for Arqaam Capital’s Fixed income asset management business, based in Dubai.

Business

IMF board to meet on Jan 11 for Pakistan’s first review approval

Published

1 day ago

Farwa

Pakistan’s case not included in board meeting agenda for Dec 1-15.
Ongoing SBA programme is going to expire on April 14, 2024.
Pakistan, IMF reached agreement on first review last month.

The International Monetary Fund’s Executive Board will take up Pakistan’s first review on January 11 next year for approval that will unlock $700 million under the standby arrangement (SBA), Bloomberg quoted the lender’s spokesperson as saying on Friday.

Last month, Pakistan reached a staff-level agreement with the IMF under the $3 billion SBA and is awaiting the board’s approval to receive a second tranche.

Earlier this week, The News had reported that Pakistan’s first review for approval was not included in the IMF’s Executive Board meeting agenda for the 1-15 December schedule

The publication reported that the IMF did not firm up its exact schedule because the Fund’s team was busy securing re-confirmation from all multilateral and bilateral creditors to meet the financing requirements of $24.9 billion for the current fiscal year.

This delay surfaced in discussions among the policymakers that the IMF might kick-start parleys on the second review probably after the general elections and takeover by the elected government.

The IMF programme was initially scheduled to kick-start parleys for a second review from Feb 3, 2024, but if the elections were scheduled to be held on February 8, 2024, then the possibility of holding talks might be done in the last week of Feb or early March 2024.

The ongoing SBA programme is going to expire on April 14, 2024.

A day earlier, IMF Executive Director Bahador Bijani noted an overall improvement in the economic situation, saying, the “Pakistani authorities have delivered”.

He made these remarks at an event hosted by Pakistan’s ambassador to the US in honour of friends of Pakistan from International Financial Institutions including IMF, International Finance Corporation (IFC), World Bank (WB), and Multilateral Investment Guarantee Agency (MIGA), at Pakistan House in Washington.

“I think the future for Pakistan is very bright. Pakistan is not just any country. It’s one of the most important countries in the region and in the world. Pakistanis deserve much more,” the IMF executive director was quoted as saying in an official statement.

Nathan Porter, IMF Mission Chief to Pakistan, also expressed satisfaction over the recently concluded staff-level agreement. He said that the actions and policies of the current government reflected its commitment to steer the country towards stabilisation.

Pakistan is reeling from Asia’s fastest inflation, has about $1 billion in dollar-denominated debt due next year and is scheduled to hold elections scheduled in February.

Interim Finance Minister Shamshad Akhtar said after the staff-level deal in November that the country may seek an additional loan from the IMF, describing the economy as “still fragile.”

Business

PSX hits new milestone as KSE-100 surges past 66,000 mark

Published

1 day ago

Farwa

KARACHI: Bulls maintained their grip on the Pakistan Stock Exchange (PSX) as the benchmark index shot past the 66,000 mark on Friday by gaining over 1,000 points.

According to the PSX website, the KSE-100 index gained 1,302.45 points or 2.01% to reach 66,020.52 points at 11:39am during the intraday trading.

Raza Jafri, who is the head of equities at Karachi-based Intermarket Securities, said that the banks and energy sector lead the rally at the bourse as cheap valuations and a reasonably settled environment help flows remain strong as foreign and local buys continue to invest.

“The MPC (Monetary Policy Meeting) next week should set the tone for near-term trading. While unchanged interest rates are widely expected, investors will look for clues in the text of the monetary policy statement to gauge how much interest rates can come down by next year,” he added.

Business

Pakistani authorities have ‘delivered’ on economic front, says top IMF official

Published

2 days ago

Farwa

IMF official says Pakistan ‘important’ country in the world.
“Our country is destined to succeed,” says Masood Khan.
Nathan Porter hails actions and policies of Pakistani govt.

WASHINGTON: Bahador Bijani, an Executive Director of the International Monetary Fund (IMF), has noted an overall improvement in the economic situation, saying, the “Pakistani authorities have delivered”.

The meeting took place as Islamabad awaits the IMF board’s meeting to approve a staff-level agreement on the first review of a $3 billion bailout, which will unlock $700 million in funding for the country.

Addressing the event, Ambassador Masood Khan observed that the past year was difficult for Pakistan. “We have passed through a wrenching transition and we are moving toward a new phase of stability,” he added.

“Have faith in Pakistan. Our country is destined to succeed,” he said.

Hosted friends of 🇵🇰 from International Financial Institutions – IMF @imf_pakistan , World Bank @WorldBank, IFC @IFC_org, Multilateral Investment Guarantee Agency @MIGA – to thank them for their steadfast support during the past year. We’ll continue to count on their partnership. pic.twitter.com/AuKbBDvG3s
— Masood Khan (@Masood__Khan) December 6, 2023

“Our confidence stems from the people of Pakistan. We have a growing middle class and our human capital is increasing at a very fast pace,” he added.

Addressing a gathering of over 40 guests from the IFIs, the ambassador said that we were grateful to IFIs for their steadfast support in navigating through a difficult economic period.

Nathan Porter, IMF Mission Chief to Pakistan, speaking on the occasion, expressed satisfaction over the recently concluded staff-level agreement. He said that the actions and policies of the current government reflected its commitment to steer the country towards stabilisation.

“With that base, hopefully, we can build on and be able to move forward to reforms to build a stronger, prosperous and inclusive Pakistan,” he said.

He also appreciated the cooperation and the policies pursued by the State Bank of Pakistan for ensuring fiscal stability in the country.

Athanasios Arvanitis, Deputy Director Middle East and Central Asia Department IMF, also spoke on the occasion and expressed the hope that the elections in Pakistan would usher into a new beginning of undertaking a reform process that the country needed to make progress and address some of its structural issues.

Thanking them for their strong support, Ambassador Khan observed that the digitisation of Pakistan’s economy was creating new opportunities in the country for its youth and professionals taking the lead role in steering the country towards a bright future.

Lauding the professional achievements of Pakistanis working in the IFIs, the ambassador observed that Pakistani professionals have proved their mettle and have made the entire nation proud of their accomplishments.

“We are a nation of talented people. If you can make it, Pakistan will also make it,” observed the ambassador.

Syed Ali Abbas, Advisor Mission Chief UK, European Department IMF, in his remarks, expressed the hope that with the successful completion of the electoral process in Pakistan, the country would move towards a long-term and more durable approach which would change the trajectory of Pakistan.

Aftab Qureshi from the World Bank and Sidra Rehman from the IMF also spoke on the occasion and assured their continued cooperation.

The ambassador thanked the members of the IFIs and said that the country looked forward to working with its development partners.