Pakistan: Election outcome not likely to resolve political crisis

Lackluster from the beginning, the exercise concluded with a whimper last evening. Amidst limited reporting due to the suspension of communication services, there were some reports of delays in the polling process and various violations of rules and the election code of conduct.

Thankfully, no major incidents of violence were reported and voting seems to have concluded in most places smoothly and uneventfully. It seems that all that remains now is the counting of votes and declaration of winners. As results trickle in overnight, we will learn how many chose to exercise their right to franchise on this historic occasion.

Till a clearer picture emerges, some reflections on the exercise: These elections had been critical for Pakistan for various important reasons.

The country is mired in unprecedented economic and social challenges, which cannot be solved except by a stable government that enjoys strong public support for its decisions.

Given its dependence on international assistance, it is also important for it to stabilize socially so that lenders and investors can feel safe about their decisions. With so many different forces pulling the country at its seams, it was almost good luck that a general election became due last year.

All that was needed was for the Election Commission of Pakistan (ECP) to let the candidates campaign without restrictions, prepare the grounds for a clean and non-controversial contest, assist the country’s adult population in freely exercising their right to self-determination, conduct a transparent count of their ballots, and quietly and respectfully bow out.

As history will bear witness, ECP failed on almost all of those counts. From repeatedly delaying the elections on one pretext or the other to failing to protect the legitimacy of its last act, it betrayed its mandate by organizing an exercise that will be remembered for all the wrong reasons.

It is difficult not to be disappointed: given the number of times the ECP hid behind the Constitution’s ‘free and fair’ condition to justify putting them off ‘till it was ready’, one would have imagined the exercise, whenever it was eventually held, would be largely irreproachable.

Of course, the blame does not lie with the ECP alone. The caretaker government and the entire machinery of the state are equally culpable in robbing it of its sanctity. Their actions worsened political polarization, and they did not know when to stop.

As a result, the exercise was doomed to controversy well before it began. It already seems clear that it will not provide any closure for the country’s political crisis.

Crisis and instability will likely continue to plague the nation, with dissent kept in check through the use of fear tactics. It is a shame that such a momentous opportunity has been so carelessly lost.

Courtesy: Dawn

Next Prime Minister of Pakistan

Who will emerge as the next Prime Minister of Pakistan remains a topic of speculation following the recently conducted general elections on February 8, 2024?

Despite the overall peaceful conduct of the elections, a notable hiccup was the complete shutdown of mobile phones. While the voter turnout was reasonably good, there were areas where the election arrangements could have been more efficient.

In Karachi, candidates from PML-N and PPP garnered attention due to the allocation of proper symbols, but PTI sympathizers faced confusion with different symbols in each constituency. Jamat-e-Islami also stood out, having invested a significant amount of money, especially in conventional and social media.

The political landscape now has analysts and pundits in a state of perplexity, fearing the absence of a two-thirds majority for any political party.

The potential outcome could be a hung parliament, leading to the necessity of political parties forming unconventional alliances, complicating the governance of the country.

Concerns also arise regarding the likelihood of extensive "Horse Trading," particularly if independent candidates secure a significant number of wins.

Moreover, there is apprehension that the ensuing government might struggle to formulate sound economic policies, contributing to a lack of focus on both economic and foreign policy matters.

It is crucial for the incoming government, regardless of its leadership, to prioritize and address economic and foreign policy issues to steer clear of uncertainties and potential challenges posed by turncoats.

Pakistan facing election delay

Calls from multiple players to delay Pakistan's upcoming general election threaten what is left of the country's fragile democracy, experts say, though many expect the polls will go ahead in the end.

The clearest push for a postponement so far came last Friday, when the Senate passed a resolution urging the government to put off the February 08 vote due to security concerns. Molana Fazal ur Rehman, Pakistan's leading Islamist politician, also endorsed the resolution.

Fears of violence are not unfounded. On Monday, six policemen were killed by the Pakistani Taliban in Khyber Pakhtunkhwa province during an anti-polio campaign, just the latest attack on security personnel. Last Friday, a religious cleric belonging to a Sunni sectarian group was gunned down in Islamabad, sparking protests.

But while deteriorating security provides a pretext for pushing back the election, many politicians, civil society activists and political commentators told Nikkei Asia that further delaying the already late vote would damage the democratic system.

"A prolonged caretaker setup that is beholden to the [military] establishment but not accountable to the people of Pakistan has eroded civilian say in governance," said Amber Rahim Shamsi, a political commentator based in Karachi.

After former Prime Minister Imran Khan was ousted in April 2022, a coalition government led by the Pakistan Muslim League-Nawaz (PML-N) party took over. Last August, it dissolved for a caretaker government to oversee elections, which were originally supposed to be held in late 2023.

Cyril Almeida, a politics expert in Islamabad, believes that Pakistan is now operating outside constitutional parameters. He said a fixation has developed on simply preventing Khan - a former cricket star turned Islamist populist now jailed over corruption allegations he denies - from making a comeback.

"Military and the civilians not aligned with Imran Khan have a single-point agenda: Keep Imran Khan out of power," he said. "So whatever it takes to achieve that, the military and its civilian allies are willing to contemplate."

Khan's Pakistan Tehreek-e-Insaf (PTI) party, which complains of an uneven playing field, is down but not necessarily out. Election nomination papers for Khan and an overwhelming majority of PTI leaders were initially rejected. Later, appellate tribunals overturned most of the decisions, albeit not for Khan.

On Wednesday, the High Court in Peshawar ruled that the PTI can contest elections under its trademark symbol, a cricket bat. Earlier, the Election Commission had deprived the PTI of its symbol on a technicality.

Meanwhile, once-exiled former Prime Minister Nawaz Sharif this week had his ban from politics lifted, clearing him to run. Sharif and his PML-N party are now widely considered the preference of the military establishment.

The Human Rights Commission of Pakistan has expressed concern about the electoral process. "At this point, there is little evidence to show that the upcoming elections will be free, fair, or credible," it said in a January 01 statement on X, formerly Twitter.

Shahid Maitla, another political analyst in Islamabad, believes the establishment and caretaker government have failed to check the popularity of Khan, who still has vast appeal among the masses. "The curtailment of Khan's party is being achieved through the management of courts, police and media," he said.

He said that some in the "business community, caretakers and unpopular political players like JUI-F are the ones having vested interests are exerting pressure on the establishment to postpone [the] polls," referring to Jamiat Ulema-e-Islam-Fazal, the largest Islamist party, led by Rehman.

Maitla even suggested that some members of the caretaker government are lobbying prominent journalists to influence the establishment and judiciary to delay the elections so that they can continue to rule.

Yet, the growing unpopularity of the interim administration is making that case more difficult, experts say.

In recent days, caretaker Prime Minister Anwaar ul-Haq Kakar and Information Minister Murtaza Solangi have faced severe criticism for comments they made at different forums. Kakar suggested women from Balochistan province protesting forced disappearances were "advocates of terrorists" and asked those who are supporting them to "go and join them."

Maitla said that the caretaker government has also failed to effectively communicate Pakistan's position on the repatriation of Afghan migrants and the Israel-Hamas war. "Kakar proved a poor choice" for prime minister, he argued, saying Kakar is keen to interact with the media but "earned embarrassment."

"The establishment is not happy with the caretakers at all," Maitla said. "If elections had not been nearing, many of them would have been replaced."

Almeida in Islamabad said the interim government has overstepped.

"All caretaker governments lack political legitimacy, but this particular group has tried to leverage the support it has of the military into space for weighing in on policy matters and national controversies," he said.

That leaves elections as the best bet to form a more legitimate government, despite the efforts to delay them.

A well-placed source within the security establishment denied rumors that Kakar could be replaced. "'[Kakar] will complete his tenure and elections will be held on time," the source told Nikkei on condition of anonymity.

"With Nawaz Sharif back in the country and now cleared to take part in elections, it is unlikely elections will be postponed at this late stage," Almeida argued.

Maitla agreed. The "election is a compulsion rather than a choice for the country and more so for the establishment, as it is losing its capital fast from the domestic to the international front."

Courtesy: Nikkei Asia

Pakistan Stock Exchange index up 2.5%WoW

The week ended on July 27, 2023 continued its bullish run at Pakistan Stock Exchange (PSX). The benchmark index started the week at 45,920.73 points, remained on upward trajectory and closed at 47,076.99 points, gaining 1,156.26 points or 2.5%WoW. Investors’ sentiments remained positive after the approval of the IMF Standby Agreement for US$3 billion and expectations that the general elections would be held in time.

Average daily traded volume was reported 125.64 million shares as compared to 325.12 million shares a week ago, down by 61.4%.

The PKR parity appreciated to PKR286.45 to a US$.

Results announcements for the period ended June 30, 2023 continued during the week. Several companies posted results below past performances mainly owing to the lingering global and local economic headwinds resulting in record high interest rates, deteriorating exchange rate, imposition of super tax, amongst other reasons.

Monetary policy announcement is scheduled for July 31, with market consensus remaining at a 100bps hike.

In other positive news, 5 state owned enterprises (SOEs) have signed  MoUs to finance their 30% portion in the development of a Greenfield refinery project with Saudi Aramco, and establishment of a Sovereign Wealth Fund worth PKR2.3 trillion by including 7 SOEs (where UAE has shown interest in acquiring shares) to fund capital investments. Abu Dhabi Investment Authority has provided technical assistance to finalize the law.

Other news for the week were: 1) global crude oil remained higher owing to production cuts amidst sluggish demand from China, 2) Pakistan scheduled to repay US$2.44 billion during July; 3) an electricity tariff hike for PKR7.50 per unit announced, barring consumers using up to 200 units and partial subsidy for consumers up to 300 units; 4) prolonged wet spell threatens cotton crop output; 5) POL products worth US$1.182 billion imported on deferred payment basis from Saudi Arabia; 6) Petroleum dealers margins increase by PKR1.64 per liter; 7) US FED announced rate interest rate hike by 0.25bps.

Flow-wise, major selling was recorded by Mutual Funds with a net sell of US$5.98 million. Other Organization absorbed most of the selling with a net buy of US$5.22 million.

Top performing scrips during the week were: HGFA, AICL, HBL, NBP, and SHEL, while top laggards included: SML, BNWM, DAWH, MUGHAL, and ENGRO.

In brokers’ opinion, the market shall maintain it’s positive uptick owing to news relating to Chinese loans rollovers, fresh funding from GCC and other bilateral allies, chances of political stability post general elections towards the end of the year and a possible re-entry into a bigger IMF program to address any lingering default concerns.

However, it is imperative to see which direction the policy rate goes in the July 31, announcement, which will further determine market sentiments.

Brokers reiterate their stance to follow a cautious approach while taking new positions and we continue to advocate dollar-denominated revenue stream scrips (Technology and E&P sector) to hedge against currency risk or high dividend yielding scrips.

 

 

 

 

Pakistan Economy: Situation far from satisfactory

As per The State of Economy Report 2021-22 released by State Bank of Pakistan, the country’s economic growth is expected to moderate considerably in FY23. Having delivered a headline growth approaching 6% in FY22, the country is expected to even miss the revised growth target of 3% to 4% this time round.

In addition, the government has targeted to reduce the fiscal deficit to 4.9% of GDP in FY23 from 7.9% in FY22, an outcome that would be achieved through both revenue and expenditure measures. Widening of tax base through elimination of exemptions, increase in tax rates and reinstatement of fuel taxes are expected to boost tax receipts. The non-tax revenues is also expected to improve with the re-imposition of PDL.

It must be kept in mind there can be slippages on the expenditure with respect to rehabilitation efforts. The IMF is insisting on higher collection in order to keep the fiscal and primary deficits within permissible levels. Analysts expect fiscal deficit to hover around 6.5% of GDP, despite higher tax collection.

This deviation could be due to: 1) higher debt servicing and 2) potential slippages during 2HFY23 owing to election and flood relief related spending.

Current account deficit situation is expected to improve beyond the original estimates of 3% of GDP in FY23 due to various demand suppression measures implemented by the government.

Likewise, commodity prices have also softened which will reduce the pressure on CAD even further. However, the loss to agriculture produce, induced by the recent floods, is likely to step up import of agriculture commodities, especially cotton.

Everyone must keep in mind that Pakistan’s economy is in an extremely fragile state at present with foreign exchange reserves slipping close to US$6 billion, barely enough to provide import cover of 1.16 months.

The external debt is reported at US$127 billion, equivalent to 40% of GDP. Pakistan faces significant challenges on the debt rollover. To this end, during 5MFY23, the gross inflow (including US$1.2 billion from IMF) has been only US$4.9 billion, while the amortization payments have been US$4.1 billion. The market has been jittery and analysts expect the volatility to continue throughout CY23.

As per the central bank, the recent flooding will impinge the country’s real economic activity through various channels, where the losses in agriculture sector arising from the damages to crops and livestock are likely to reverberate through the rest of the economy.

The current estimates for headline growth are 1.7% while analysts expect only a limited uptick in growth outlook during FY24, despite a low base effect, as the central bank would want to keep the indigenous demand in check to manage external account.

Fiscal side is not much better either. The GoP has targeted to reduce the fiscal deficit to 4.9% of GDP in FY23 from 7.9% in FY22, an outcome that would be achieved through a combination of both revenue and expenditure measures. FY23 has got off to a good start in term of collection with FBR exceeding its collection targets for 5MFY23.

There is currently an impasse over the IMF talks over the disbursement of the next US$1.0 billion tranche, with the fund and local authorities unable to agree on the quantitative targets. Analysts expect fiscal deficit to clock in at 6.5% of GDP, despite higher tax collection.

The GoP and the central bank are anticipated to keep the import bill under the wraps beyond FY23 in order to maneuver space on external front. This may result in interest rates remaining elevated and strict control of opening of L/Cs. The fallout, which may inevitably come as a result of adopting this strategy, will be visible in lower headline growth and tax collection. Analysts anticipate GDP growth to remain subdued beyond FY23.