PKR volatility reveals a compromised central bank (Dar’s public outburst against SBP on July 5th-6th);
Despite assurances from GoP/SBP, a BoP crisis appears likely;
Supreme Court’s unanimous verdict to disqualify Nawaz Sharif, is in keeping with Justices’ written judgment and blunt JIT assessment;
Reaction of Western government?
Will MoF/SBP start talking with the IMF?
Will new SBP Governor retain his position?
BoP problem is structural. Exports are key and CPEC needs to become export-based to succeed;
Expect mini-Budget to resolve external sector problem;
Qatar blockage has not helped the Saudi alliance or the US (Qatar will remain defiant);
White House descending into the unknown (Priebus leaves, trump Tweets against his Attorney General, health reform is rejected, Trump criticizes Hezbollah during a press conference with Lebanese PM, where Hezbollah is a coalition partner in the Lebanese government);
North Korea tests ballistic missile that can reach the continental US. Trump refuses to engage the UN and seeks to find a unilateral solution. Americans increasingly concerned about a nuclear exchange.
Stock market very erratic, and JIT is being blamed;
JIT is serious, and the manner in which the PML-N is hitting back reveals that it is scared of the possible outcome. Predict a negative verdict against Nawaz Sharif;
Qatar blockade is likely to be green-lighted by Trump, and now cannot be solved within the GCC. Turkey’s Erdogan is very vocal, showing regional ambitions that are new;
Iran has struck Syria with missiles. This is unprecedented and shows that Iran also has regional ambitions;
Policymaking and regulatory institutions in Pakistan are now unable to manage political/financial /economic shocks;
Export outlook will not be rectified by ‘policy packages’ – more is now required;
Suggest that high end consumer items (luxury cars) may be disallowed;
Real estate values in Karachi are soft because of regulatory issues;
Qatar blockade will not be resolved soon, while Syria has become a proxy war between the US and Russia;
Macron’s victory is a relief for the liberal order;
Trump’s involvement with Russian meddling in the 2016 election will not go away.
External sector remains top concern, and export revival is unlikely;
Stock market is jittery despite MSCI;
PM relaxes fiscal deficit cap for the next three years, gearing up for forthcoming elections;
Trump fires FBI Director, which looks like the initial stages of the Watergate Scandal of 1974;
Iran’s elections may bring in a hardliner;
Macron wins, but will face a hostile work environment;
Notes from a very revealing trip to Lahore and Faisalabad to meet large textile exporters:
Exports down because of structural and behavioral reasons. Incentives are such, that Pakistan’s largest exporters have started making more money in real estate development in Pakistan than in developing their export markets.
Unless we get serious about increasing exports, we will have to slash imports;
Trump may have obstructed FBI’s investigation (which is an impeachable offence);
Things are falling in place for a bi-polar world;
Macron’s victory does not mean the populist wave in Europe has been extinguished.
External sector is top priority, and SBP/MoF have imposed import margins, halted forward booking (of $) & increased PoL prices;
Issue: can SBP hold the PKR parity till the 2018 elections?
Panama-Gate is keeping the stock market volatile;
Dismal economic outlook in the GCC and hate crimes in the US/Europe, could incentivize reverse capital flight;
Trump’s cabinet is fundamentally divided on deregulating Wall Street (globalists vs. nationalists);
Wilders (Netherlands) poor showing in the elections does not mean Europe is safe. Differing views on immigration reveal a divided European society;
We formulated a scenario that shows how confusing 2018 could be:
PML-N calls for early elections in Dec/Jan 2018, as it cannot hold the PKR-parity;
Interim government does a big adjustment of the PKR;
Inflation spikes followed by interest rates; fiscal pressures build; Interim govt begins talks with the IMF to pacify the market, but does not have the mandate to commit the country to a stabilization program;
Inflation spikes followed by interest rates; fiscal pressures build; Interim govt begins talks with the IMF to pacify the market, but does not have the mandate to commit the country to a stabilization program;
PML-N wins the elections, and straight away goes to the IMF.
Half year external deficit in FY17, is larger than full year deficits since FY14 (we have a problem);
GoP has categorically stated that it will not demonetize the 5,000 Rupee note (after India’s decision to demonetize large denomination notes on 8th November 2016);
Stock market continues to boom, and real estate transactions have picked up (market sentiments are bullish as the wealth effect is in full bloom);
Trump’s first week in the White House has:
killed the Trans Pacific partnership (TPP);
threatened Mexico;
emboldened rightwing European political parties;
witnessed mass resignations from the US State Department;
Public protests against President Trump’s victory are global;
Fiscal spending and low taxes will increase US fiscal gap and inflation (and force up US rates more than market expects);
Trump and Steve Bannon have already changed the US political landscape.
