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Pakistan Strategy_IMF review Focusing on reforms, (AKD Detailed Report, Apr 09, 2021)

AKD Daily

Pakistan Strategy : IMF review Focusing on reforms

• IMF in its latest detailed assessment on Pakistan following disbursement of US$499mn (that took c. disbursement under the program to 32.7% of US$6bn program), lays emphasis on fiscal and power sector reforms (release of circular debt payment under the agreed MoUs, notification of FY20 Q4 quarterly adjustment and FY21 annual rebasing).
• At the same time, the report underlined the need for calibrated approach in achieving reforms so as to keep economic recovery unperturbed. We believe the same could potentially result in revision in FBR revenue estimates (FY22: PkR5.96trn, +26.8%YoY compared to revised FY21 est. of PkR4.7trn) later during the period. Full implementation of TSA-1 by May’21 is also made part of fiscal reforms, work on which has already been initiated.
• Moreover, the staff has concurred current monetary stance, indicating interest rates may remain stable until economic recovery becomes more entrenched while any increase would be gradual as to achieve mildly positive real rates.
• The report also acknowledged Govt.’s progress for meeting compliance with FATF’s remaining 3 item points (24 already complied) stating it to be in advanced stages with completion deadline before next review in Jun’21.
• The IMF authorities have also altered disbursement schedule which, dependent upon success of the sixth review, would unlock US$1bn flows in Jun’21 and should support recent appreciation in PkR (+~9.0% from its low of ~PkR168). To highlight, IMF staff projects US$3.4bn funding surplus in FY22.
• From market’s vantage, IMF’s keen interest on autonomy of regulatory bodies (SBP act, NEPRA act, OGRA act etc.) should resolve structural issues particularly in energy chain keeping power-related stocks and OMCs (PSO) in limelight whereas continued US$ flows (SBP recently received US$2.5bn Eurobond payment) and consequent PkR appreciation could gather interest in Cements, Steel (already reeling from stronger demand) and Autos.
• That said, potential tax measures in the upcoming budget remain a key headwind in the near term.  

AKD Research