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.
