An­a­lysts warn pre-elec­tion pop­ulist de­ci­sions can de­rail econ­omy

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The gov­ern­ment’s soft-ped­alling on the re­forms it had promised four years back showed the econ­omy is no more a pri­or­ity ahead of 2018 polls as it of­fered a num­ber of po­lit­i­cally mo­ti­vated in­cen­tives Lamnesties to re­flate the growth, an­a­lysts said, warn­ing fur­ther stim­uli will only put pres­sure on the coun­try’s fis­cal ac­count.

“This is the pre-elec­tion year and the gov­ern­ment needs poli­cies and de­ci­sion to strengthen its vote bank. There­fore, I do not see a tax-heavy bud­get or any sig­nif­i­cant rise in pe­tro­leum prices going for­ward,” Khur­ram Schehzad Chief Op­er­at­ing Of­fi­cer at JS Global Cap­i­tal said.

“We see slip­pages on the ex­pen­di­ture side vis-à-vis for­eign debts even if the gov­ern­ment opts for pro­duc­tive pop­ulists de­ci­sions such as the os180 bil­lion ex­port pack­age an­nounced quite re­cently.”

He ex­plained that even if the gov­ern­ment opts for in­fra­struc­ture devel­op­ment alone or an­nounces sup­port pack­ages for in­dus­try, the for­eign/do­mes­tic debts are the only source to fund the same.

“Pak­istan’s cur­rent ac­count re­mains sen­si­tive as a cou­ple of re­pay­ments are due this year, while for­eign di­rect in­vest­ment (FDI) is low and ex­port mar­ket has be­come quite com­pet­i­tive trans­lat­ing into lim­ited sup­port from ex­port re­ceipts,” Schehzad said.

He also pointed up the fact the Pak­istan Mus­lim League-Nawaz (PML-N) regime is strained un­der un­suc­cess­ful tax amnesty schemes, while the col­lec­tion tar­gets re­main grossly missed and now, an­other such re­prieve is in the off­ing but it’s no use pin­ning hopes on any.

“Amnesty would not yield re­sults un­less availed. Be­sides, such de­ci­sions dis­cour­age hon­est tax­pay­ers,” Khur­ram Schehzad added. Giv­ing his viewpoint, Khawaja Am­jad Wa­heed, CEO of NBP Fuller­ton As­set Man­age­ment (NAFA) said,” The fis­cal tar­gets for the cur­rent year are set to be missed.”

“The tar­gets will not be met due to slip­pages on the ex­pen­di­tures side amid higher spend­ing by fed­eral and pro­vin­cial gov­ern­ments be­fore next gen­eral elec­tions sched­uled in early 2018, no IMF over­sight and gov­ern­ment’s re­luc­tance to im­ple­ment fur­ther rev­enue mo­bi­liza­tion mea­sures be­cause of elec­tion con­sid­er­a­tions”.

A re­port is­sued by Elixir Se­cu­ri­ties high­lights sev­eral macro-eco­nomic chal­lenges such as higher fis­cal slip­pages on ac­count of pop­ulist mea­sures prior to elec­tion year, mon­e­tary tight­en­ing, resur­gence in com­mod­ity prices, ex­ter­nal ac­count pres­sures em­a­nat­ing from surg­ing cur­rent ac­count deficit, flat­tish re­mit­tances and up­com­ing debt re­pay­ments.

On the ex­ter­nal ac­count front, Khawaja Am­jad Wa­heed ex­pects the cur­rent ac­count deficit to widen in fis­cal year 2016-17 due to higher im­ports es­pe­cially plant/equip­ment and en­ergy-re­lated ma­chin­ery, sub­dued ex­ports and stag­nat­ing re­mit­tances.

“How­ever, an over­all bal­ance of pay­ments po­si­tion is likely to re­main com­fort­able on ac­count of higher ex­ter­nal loan in­flows and some in­crease in FDI. Nonethe­less, if re­mained un­ad­dressed, the slug­gish ex­ports would even­tu­ally pose se­ri­ous risks to medi­umterm bal­ance of pay­ments sus­tain­abil­ity and threaten the re­cent eco­nomic gains.”

Ahmed Lakhani at JS Global Cap­i­tal says a sig­nif­i­cant por­tion of an ex­port pack­age worth os180 bil­lion was di­rected to­wards boost­ing the sec­tor’s com­pet­i­tive­ness, while its mar­ket share was con­stantly be­ing gnawed away by the likes of Bangladesh and Viet­nam with pro-ex­port poli­cies by their re­spec­tive gov­ern­ments. “To counter this trend, the gov­ern­ment has pro­vided a num­ber of in­cen­tives to the tex­tile sec­tor, which will sig­nif­i­cantly benefit tex­tile ex­ports.” Tak­ing a sim­i­lar line, Arslan Hanif at Arif Habib Lim­ited said,” The much awaited ex­port pack­age should help ex­porters re­duce their cost of do­ing busi­ness and com­pete against re­gional peers.”

“The tex­tile pack­age is a pos­i­tive for the tex­tile man­u­fac­tur­ers and will push ex­porters to bring in ad­di­tional USD pro­ceeds, re­sult­ing in higher FX re­serves in turn help­ing the USD/PKR dol­lar par­ity to re­main sta­ble.” How­ever, an­a­lysts are unan­i­mous that the loom­ing macroe­co­nomic chal­lenges are man­age­able and prospects for the do­mes­tic econ­omy look up­beat in 2017.

Just to jog your mem­ory, Pak­istan’s eco­nomic per­for­mance has re­mained fairly ro­bust in 2016 mainly sup­ported by the favourable global eco­nomic en­vi­ron­ment and par­tially due to some eco­nomic re­forms mea­sures un­der­taken by the gov­ern­ment un­der the IMF pro­gram.

Gross Do­mes­tic Prod­uct (GDP) growth reached an eight year high of 4.7 per­cent; ex­ter­nal ac­count po­si­tion re­mained com­fort­able, as cap­tured in healthy for­eign ex­change re­serves ac­cu­mu­la­tion though pri­mar­ily on the back of fresh loans and a sta­ble ex­change rate; in­fla­tion av­er­aged at around 3.7 per­cent dur­ing 2016 mainly helped by the steep fall in global oil prices, which al­lowed cen­tral bank to con­tinue with its ac­com­moda­tive mon­e­tary pol­icy; and fis­cal deficit stayed con­tained, nar­row­ing to 4.6 per­cent of GDP dur­ing the last fis­cal year.

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