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.
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;
