This space has been advocating that policy rate should not be where it is today. The hike in Jul-19 was totally uncalled for and the policy rate should not have been higher than 12.25 percent. But there is a different between what should have happened and what is likely to happen.

Reading from the SBP Governor’s comments and monetary policy statements and minutes, the chances of any cut in Nov-19 are less likely. The SBP governor appears very keen on looking at month on month headline numbers, and based on recent hike in food prices, rate cut seems unlikely. He had said that central banks are like ocean liners, they take time to change directions – the institutions gain credibility on doing what they say.

The good thing is the success in documentation – credit goes to Shabbar and institutions at his back to resist voices of influencers. Tax collection is showing increase, and the fiscal primary deficit is likely to be met, and the IMF targets are in line. The expectations of many market pundits were exactly opposite a few months back.

Having said that, the core of the structural and fiscal problem are energy woes. That resolution is yet to reach at a level to make critics comfortable. Any rally or recovery is not sustainable without bringing the energy house in order.

Within the IMF report, the major issue discussed at many places is energy. And the channel checks confirmed that the IMF is not happy at energy sector performance – the government had to give a roadmap to end circular debt growth, which is missing. There are targets on unbundling of energy companies – not in sight. The third-party access on gas import has to be allowed – not yet done, and the list goes on.

The tariff differential recoverable of SNGP has increased from Rs122 billion to Rs170 billion between Jun-18 to Mar-19 despite massive increase in gas prices. How much more gas prices will increase in the process? The trade debts of PPL increased from Rs142 billion to Rs227 billion in FY19, and the situation of OGDC is no different – OGDC and PPL supply to gas and oil marketing companies and eventually that goes to power companies. Since the power companies are not getting flows, the whole chain is adversely affected. The only answer the government has to pass on the increase to consumers – by hiking tariffs. How much more tariffs are to increase?

The consumers will slowly sway away from grid – industry is keen on using captive while domestic and commercial will opt for solar solution. Less energy to consume from grid due to higher prices and per unit capacity charge will increase. The situation may worsen as another 7,000 MW are being added to the system in a yare or so.  The government is working on optics, and market is jubilating on stock returns. The approach to resolve energy is casual, and it’s a monster that will eat all the gains, if remained unaddressed.