Forward March

Spearhead Analysis-04.12.2019

The ‘even this shall pass’ thinking seems to have done its magic. The dharna that should not have been did take place and died its own death. While it was there the optics from the round the clock media coverage was not good for the country—especially not for a country with nuclear weapons—but its end as a damp squib made up for the damage. The government that was being criticized for allowing the gathering emerged unscathed from the episode so perhaps its strategy was right.

The Supreme Court triggered furor over the extension/reappointment of the Army Chief need not have happened. It did and has passed. A quiet President –PM huddle to decide that both wanted the Army Chief to stay on for another term could have been followed by a PM-Army Chief talk to confirm that the Chief would accept another three years in the national security interest. Thereafter a cabinet meeting would have led to formal government approval and a summary going to the President followed by a notification by the Ministry of Defense, End of matter. The problem started with a three-line letter from the PM granting a fresh tenure to the Chief in August and ended with The Supreme Court resolving the matter to everyone’s satisfaction. The government now has to do its work. Once again the optics of the entire process were not good but all’s well that ends well.

The government had been crying hoarse that it had stabilized the economy and good things would happen. The economists, the media, the analysts and the street opinion solicited by roaming media people did not agree. Now Moody’s Investors Service (“Moody’s”) has changed Pakistan’s outlook from negative to stable affirming Pakistan’s local and foreign currency long-term issuer and senior unsecured debt ratings at B3. “Moody’s expects Pakistan’s current account deficit to continue narrowing in the current and next fiscal year, averaging around 2.2% of the GDP, from more than 6% in fiscal 2018 and around 5% in fiscal 2019.Pakistan’s economy is among the largest across similarly rated peers, while we estimate its growth potential to be around 5%, higher than the median for B3 rated sovereigns”. The report further outlines scenarios for upward or downward changes in Pakistan’s credit rating. “Upward pressure on Pakistan’s rating would develop if ongoing fiscal reforms were to raise the government’s revenue base and debt affordability and lower its debt burden markedly beyond Moody’s current expectations”. So the government had been right when it noted success and said that the IMF and World Bank were satisfied and that it was moving to address FATF concerns and working on the revenue issue.

More good news. The KSE 100 Index is up by 14.9% in November 2019, highest one month return after May 2013. Since 16 August 2019, the index increased by 36.6% (10,500 points). The strong rally in Stock Market shows increasing investor confidence on stabilization measures taken by the Govt. The Stock Exchange rallied strongly over the past week closing at #9,288 points. This was no doubt helped by the clarity provided by the State Bank governor on maintaining the current monetary policy by keeping the interest rate unchanged at 13.25 per cent. The exchange rate also remains stable. The state bank said “that market sentiment has begun to gradually improve on the back of sustained improvements in the current account and continued fiscal prudence—the end of deficit monetization has qualitatively improved the inflation outlook.”

The Prime Minister has comprehensively addressed the air pollution issue and guidelines have been given for actions to be taken now and in the future. Last but not the least entrepreneurs like AIRLIFT and others are emerging to harness the large segment of the youth population and the 82 million people who constitute the middle class. So, time to look ahead, extricate from the morass of the past and march forward.

(Spearhead Analyses are collaborative efforts and not attributable to an individual)