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Pakistan Politics: Khan's PTI Emerged Victorious in National Polls

• In Pakistan’s 2018 National polls, PTI seems to have emerged victorious, winning 119-120 NA seats or 44% of the total (PTI won 28 NA seats or 10% in the last elections), becoming Pakistan's largest political party. This is as per unofficial result, according to various media outlets with over 50% vote count.
• In the second place we have PML-N with 60-68 seats or 25% of the total (PML-N won 127 NA seats last time or 47% and formed majority as around 17 independents joined later).
• PTI NA seat count is better than our estimated seats of 85-95 or 33% and also better than pre-election surveys/polls. Please see our reported titled 'PTI Likely To Lead The Electoral Battleground', published on 2 Jul 2018. This surprising seat count beats experts’ earlier forecasts owing to PTI’s higher than anticipated NA seat win from Central & North Punjab (Punjab has a total of 141 NA seats out of which 95 are from North & Central Punjab) and KPK (total seats 39), we believe.
• This emerging situation is in-line with our base case view where we assigned 75% probability of PTI led Government.
• While it was widely anticipated before elections that no Govt. will be able to form a majority and chances of a weak coalition Government/hung parliament were imminent, results so far indicate a PTI led Government. 
• Other political parties have shown their concerns over fairness of elections. PML-N in their last night press brief levelled serious rigging allegations and rejected results. PPP, MMA and MQM also showed their reservations. However, electoral body has rejected all such allegations while European Union (EU) observer has termed elections satisfactory and called it better than the last general elections held in 2013.
• The newly elected Government’s first and foremost task will be to address the rising twin deficits and to introduce reform measures.
• Pakistan’s external Current Account Deficit (CAD) for FY18 came to US$18bn (5.8% of GDP) up 43% over FY17 CAD of US$12.6bn. This was much higher than expectations and was partly financed through reserves, which declined by US$6.3bn during FY18 to close at US$9.8bn (around 2x imports). Other than the external account, the fiscal situation is also of concern as Pakistan fiscal deficit in FY18 is expected to be close to 7% (compared to 5.8% in FY17) due to lower than expected revenues.
• The above rising trend does not bode well for Pakistan’s economic outlook. Further, conservative estimates place Pakistan’s external funding requirement next year to be at least US$20bn. We believe that Pakistan will likely enter an IMF program in the next few months to address these rising deficits.
• Some of the reform measures adopted will likely include further currency devaluation (currency devalued by 20% since Dec’17), further hike in interest rates (SBP increased policy rate by 175 basis points to 7.5% in 2018), increase in tax rates, higher regulatory duties to curb imports, higher energy tariff to contain the circular debt and fiscal deficit etc. The compound effect of these measures will be a likely slowdown in corporate earnings growth and economic growth going forward.