Historically Pakistan and International Monetary Fund
(IMF) has lived with each other, at times with comfort and at tome with some
unease. While the IMF role as ‘lender of last resort’ has helped Pakistan in
overcoming economic malice, the loan covenants are often seen by Pakistani’s
rather stringent.
Ideally the ruling regime in Pakistan should be more careful
in formulation of policies and implementing these in letter and spirit but the
overall impression is that the successive governments sooner or later suffer
from complacency. It may also be said that political agenda pushes economic
agenda in the back ground. Many analysts strongly believe that condoning
deviation may not be difficult had appropriate efforts were made. In other
words these deviations are the result of not following the ‘IMF Recipe’.
A team of AKD Securities, Pakistan’s leading brokerage
house, recently met the IMF Regional Representative for a discussion on
Pakistan’s progress on the macro front in the context of the ongoing EFF
program. After the meeting it has also released a report that has many takeaways.
While progress on reform agenda so far remains
commendable, continued reform implementation post completion of the program was
stressed, where energy crisis and low revenue collection continue to rank as
high priority issue areas.
The IMF, though cognizant of likely delays, sees room for
steady structural changes even post completion of the program based on higher
GoP resolve. Benefits of low oil prices and earlier reforms have placed
Pakistan in a macro sweet spot with economic indicators marking record levels.
Agreeing with the IMF, AKD team believes this opens room
for addressing deeper structural issues that can help Pakistan sustain recent
economic gains where key reform areas highlighted were: 1) exports sector
revival, 2) tax base expansion and 3) efficient expenditure and resource
allocation between federal and provincial governments.
Key
takeaways
Priority
on energy and revenue: Key issue areas for reforms that retain the
highest priority were Energy and Revenues expansion – both resonated by all
participants. Resolution to the country’s energy problems was highlighted,
particularly in the context of its impact on industrial growth. Also, revenue
collection remains equally crucial where considerable focus should be directed
towards structural changes both through a) regulatory/legislative action and b)
operational changes in FBR/tax collection mechanisms.
Privatization
to slowdown: The privatization program remains on
agenda, however it is likely to stretch beyond the current program as political
opposition in PIA’s strategic divestment and labor union concerns in case of
DISCOs continue to be major hurdles. That said, recent road shows for DISCOs’
sell-off were regarded as a key positive. Analysts expect revision of current
timeline in the upcoming IMF review report for December 2015. Moreover, with
the current government resorting to populist decisions in the run up to next
general elections (expected 2018), the brokerage house highlight heightened
risks to PSE sell-offs.
Another
program unlikely: With the current program effectively
concluding in June 2016, rollover to another program remains unlikely on
account of Pakistan’s stable Balance of Position position. However the Fund is
likely to remain engaged in a consultative process with the GoP to monitor
current program objectives, though without imposition of conditions/targets.
CPEC
– lack of clarity lingers: The Fund views the landmark China Pakistan Economic Corridor (CPEC)
agreement as largely positive, though details on nature of agreements remain
sketchy and are yet to be factored in fiscal expectations/targets. Alongside,
infrastructure projects need for investment in export oriented sectors was also
noted.
