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October 20, 2016

  • FX reserves have plateaued & exports remain a concern;
  • PKR/$ still too stable;
  • If inflation remains subdued as projected, there is no reason for SBP to increase interest rates till FY19;
  • Optimism about the economy recently boosted by China’s strong support for Pakistan at the BRICS summit in Goa;
  • China has encouraged Iran to join CPEC;
  • US presidential race is still a circus. Even if Trump loses, he will have changed the political landscape in the US.
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September 27, 2016

  • Macro conditions remain stable, but BoP concerns have started;
  • Real estate market has dried up and lobbyists are pushing the government to back off from promised valuation changes;
  • Since real estate is the main source of parking undocumented money, informal economy is not getting sufficient financing;
  • BoP gap is twice as large as in FY16. Pressure is building on SBP to have a more proactive PKR policy;
  • GoP is retiring its borrowing from commercial banks.  This means bank margins are narrowing, which could reduce profitability;
  • Sense of optimism about economy has given way to concerns about the external sector;
  • US presidential elections could still surprise;
  • Fears of European fragmentation are very real.
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August 30, 2016

  • Successful completion of 3-year IMF program;
  • Do not foresee an unexpected change in SBP’s monetary policy, and a passive monetary stance in FY17;
  • Policy to move towards proper valuation of real estate could be a significant step forward;
  • ADB funding for energy sector reforms look promising;
  • Strong consumption spending reflected in automobiles, electronics and construction;
  • Official macro projections not yet announced for FY17;
  • Brexit should not impact Pakistan, but forthcoming US elections are frightening.
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July 29, 2016

  • Macro conditions are positive, PKR is stable and FX reserves are at record highs;
  • Political differences between the US and Pakistan should not adversely impact the closure of the IMF program;
  • GoP negotiating with real estate association about making property valuations more accurate.  We think this is a very positive step, which will enhance documentation, create white money and create some balance in real estate values;
  • GoP is now pushing towards divestiture, not privatization.  This effectively means that legislative constraints, labor strikes and political opposition are deemed insurmountable by the encumbent government;
  • Economic sentiments remain optimistic (FX reserves; stable PKR; low/soft inflation & successful IMF program);
  • Full year macro projections (for FY17) will be announced after the IMF’s post-program monitoring
  • Frexit would be much more disruptive than Brexit, as this would be the end of the Euro;
  • UK after Brexit will be saved by the English language and English Law.
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June 20, 2016

  • Macro conditions remain positive;
  • Imposition of withholding tax on cash withdrawals has resulted in a sharp increase in currency in circulation in FY16 compared to FY15;
  • Budget FY17 is selective, self-serving & a non-event:
    • No meaningful debate about the Federal Budget in Parliament;
    • Focus on poor and rural sectors (increase minimum wage), hard on salaries of the middle-class;
    • Rewards 5 key exports and low/mid-level bureaucracy;
    • No fiscal, energy or PSE reforms;
    • GoP plans to borrow $ 2 bln from global banks are not wise, as it simply seeks to replace IFI flows with commercial flows.  This will reverse the downward trajectory of external debt servicing projected for FY17-FY21;
    • Using withholding taxes as a revenue source (regressive and shows a lack of political will);
  • Brexit decision will be interesting, and it will not end on June 23rd.
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May 16, 2016

  • Macro conditions remain stable, and M2 growth has been almost the same in FY16 as it was in FY15 (6.5%).  Budgetary support also the same as in FY15, but private sector credit growth is higher this year;
  • Market remains optimistic about the economy:
    • PKR is stable and external sector is comfortable;
    • Low inflation and improvement in security conditions (esp. in Karachi);
    • Rising real estate values wealth effect consumer spending.
  • Some disappointed we will not have another IMF program (a sad reflection of the level of confidence the market has on our policymakers);
  • Little media attention on Budget Strategy Paper FY17.  More interested in Panama Papers.
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