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Pakistan

Experts identify key economic challenges amid political chaos

  • Pakistan is facing challenges on multiple fronts including rising inflation and depleting foreign exchange reserves
Published April 8, 2022

Prospects of political stability increased after the Supreme Court of Pakistan on Thursday dismissed the ruling of the speaker on the no-trust motion against Prime Minister Imran Khan, and said PM Khan’s advice to the president to dissolve the Assembly was contrary to the Constitution and of no legal effect.

The development comes at a time when Pakistan is going through an economic rough patch, as rising inflation rate and depleting foreign exchange reserves have battered the South Asian nation’s economy.

Market experts highlighted key challenges for the upcoming government on the economic front.

“The key question for the new government will be whether it will continue to run the government till the next general election scheduled in next 1.5 years or will it carry out early elections,” said Topline Securities in its latest report.

“It is likely that the new government will carry out electoral reforms and then call early elections in few months time,” said the brokerage house report.

Topline said that along with political challenges, the new government will also face key economic challenges, in particular talks with the International Monetary Fund (IMF), which remain deferred due to political instability in the country.

“Strong relations with other countries including US, China, Saudi Arabia will also be key as it will determine the outlook of foreign flows to the country and rollover of maturing debt.”

Meanwhile, “adjustment in gas and electricity tariffs will also be a key initiative the new government will have to take,” it said.

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“We also believe that the import-restricting policies will continue in the new government as imports are rising at a rapid pace ... it will also be interesting to see if the current SBP governor continues or not,” it added.

On the other hand, another brokerage house, Arif Habib Limited (AHL), in its report pointed out that the new government's first task should be an immediate policy formation, which would be a key sentiment driver for the market.

“Primary focus should be on exports and stability in the external position,” said AHL in its report.

“For this reason, the new government should have dedicated targets for exports. The IT sector, while already thriving, should further be explored. Value-added textile exports should also be encouraged.”

“Moreover, we believe the currency should be allowed to remain at its market-determined level, and take any pressure from the external account,” it said, while calling for maintaining proper channel flows for remittances to keep foreign reserves afloat.

Pakistan's growth rate to slow down to 4% in FY22: ADB

“A major challenge, however, could be expected hike in gas prices which will need to be implemented effective immediately under the recently passed WACOG bill,” said the brokerage, while urging the new government to ensure that it protects the lower-income strata of the society by finding an ideal mix of gas prices while also meeting the revenue requirement of gas utilities.

The report also said that the new government should remain focused on broadening the tax net and rationalising subsidies.

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