Pakistan Economy: What comes next with the IMF,
- The IMF staff country report on Pakistan's Extended Funding Facility (EFF) accompanied by the Memorandum of Economic & Financial Policies and Technical Memorandum of Understanding lay out the most conclusive tone yet, policy prescriptions for reforming the economy from its prevailing "critical juncture"
- Pertinently, on the fiscal side, additional tax revenues of 4-5% of GDP are targeted, seeking an annual PkR1.6trn additional tax revenue effort over the next three years, setting a floor on FBR collections of at least PkR5.5trn (stated target for FY20) necessitating strong fiscal adjustments
- Having implemented a flexible market determined exchange rate since May'19, the program underscores the need for continued adoption of a 'flexible market determined exchange rate', with limited intervention from the central bank in case of 'overshooting or disorderly market conditions'
- This exchange rate regime will be complemented by tough monetary policy response, maintaining positive real interest rates, with the Fund expecting inflation to average 13%YoY in FY20, and pushing for aggressive tightening to continue through to the upcoming MPC at month's end (AKD Research expects 150bps hike, taking the policy rate to 13.75%).
- Strong commitments to maintaining power and gas pricing tariff pricing discipline were asked for and made by the GoP. Additionally, long term actions to address circular debt and introducing gas pricing efficiency (UFG curtailment) through consistent emphasis on feedback, monitoring and governance remain core tenets of the IMFs proposed program.
- While underlying program safeguards with risks (possible FATF actions and need for compliance), this document represents a roadmap for regulatory action and a cohesive strategy for addressing macro-imbalances (long awaited) is now public, lending a degree of certainty to otherwise unruly macro sentiments.
AKD Research
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AKD Securities Ltd. caters to a diversified group of domestic and international institutional investors, high net worth individuals and upscale retail clients, including expatriate Pakistanis. With high quality research, unparalleled execution and distribution capability for both regular and large block trades, AKD Securities Ltd. has earned an outstanding reputation in the Pakistani securities industry.Outside of commercial banks, AKD Securities Ltd. is one of the biggest capital market firms in the country. AKD Securities is the leader in raising and providing risk capital in underwriting, market making and mergers and acquisitions in Pakistan. Good corporate governance and professionalism are emphasized throughout the firm and AKD Securities Ltd. is amongst the very few companies to have introduced a firm-wide comprehensive CODE of ETHICS, overseen by an independent compliance manager.Ultimately, our success is based on the quality of service we provide to our customers and the trust and confidence reposed in us by them. Our focus, therefore, remains on customer satisfaction at all levels in the company.
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