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The government does not seem to have a clear road map for economic recovery. The SBP is designing a policy of import compression, and is eyeing to jack up tax revenues growth at an unprecedented level, and the ministry of industry is eyeing to boost investment and improving business climate, and the PM's office is keen on accountability.
All the policies are right in silos, and are the need of the hour - but these are interlinked and have externalities on each other; the coordination is missing. The government does not seem to have an idea from where to pick the thread. Within a year or so, too many changes in team, and coming up with a new plan every now and then is eating away the investors' confidence. That is not a good omen.
The government has to pick its battles, and has to have the right person to anchor the ship. The utmost need is to build foreign reserves and curb the alarmingly high fiscal deficit by jacking up tax and non-tax revenues. These steps may bring short to medium term stability, while structural reforms are required to make stability sustainable.
On reserves building - the optimal option is to jack up exports, and the second best choice is to get FDI chunks - but these two are long term commitments from investors and that requires short to medium stability; and to get stability, reserves have to be built. The next best avenue is debt from capital market - there are options of direct borrowing from capital market - Eurobond, and Sukuk, and the other way is attracting portfolio investment in government papers - hot money.
The SBP governor is eyeing portfolio investment - that quantum required is in billions of dollars, not millions. This is unprecedented in Pakistan. The Governor did that in Egypt and he is trying to emulate the strategy in Pakistan. A few weeks back he was in New York along with local investment houses representatives to lure fund managers and investors.
There are some tax issues as foreigners do not want to be treated the way domestic investors are. The taxation changes can be brought by presidential ordinance which will in due course of time require parliament approval for enactment of law. The buzz is that foreign portfolio investors may not be comfortable to invest till the legislators approve it - and for that government may have to come up with a mini budget.
One may wonder why this was not considered at the time of presenting budget. Well, the economic team was changed just before that and there was no homework. Now all of a sudden, someone thought of another option - off-loading government's share in OGDC and PPL to foreign investors.
Again, there is no thought process behind the move and the decision is probably taken in haste. At one point, the stock market players are asking for bailout (uncalled for though) to stabilize market and to restore investors' confidence. On the flip side, the steps are taken to enhance supply to further depress the market; and that is dampening sentiments further.
Apart from that, timings could not be worse for secondary offerings. Ishaq Dar tried to make a similar mistake back in 2014 when the oil prices were low and investors were not interested in E&P sector. The price offered at that time was Rs 216 ($2.1) per share; and today based on market price, the government will be offering throwaway price of 60 cents or so. What is the point of such desperation? Is it to appease PM by giving filler as an alternate plan?
A question in many people's mind is that why does the government not issue Euro bond or Sukuk. Why don't we hire US-based investment bank and give them good fee for selling bonds? According to a senior market pundit, "US investment bankers can sell their mother for good money; why can't they sell Pakistan bond?" Argentina, a country that defaulted for 5 times in the last few decades managed to float 100 year bond last year. Why can't we do it?
There is no reason but to believe the incapacity and indifference at MoF. The country needs someone like Shuakat Aziz - who was a marketing guy and knew how to sell. These WB and IMF-trained people are not equipped for the job required at Islamabad's Q block.

Copyright Business Recorder, 2019


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