January 29, 2019 (MLN): Last year, Pakistan had to face various economic challenges pertaining to twin deficit, rapidly eroding foreign exchange reserves and high inflation. So while the government was striving hard to tackle these challenges, the interest rates were simultaneously shooting upwards.
The core driver behind positive expectations among people this year is the fact that the economic crises has somewhat ended now. The main issue was the running of current account deficit which about a few months ago, was running $2 billion per month. However, strategies like export rebates and import duties have reduced the current account deficit, whereas further improvement is expected on the back of business friendly mini-budget in which the government has announced tax incentives to productive sectors like industry, agriculture which will further help in boosting exports.
Moreover, the stock market performance is also giving positive indications that things will improve in CY19 on the back of supplementary finance bill and anticipation regarding the IMF programme. However, improvement in the stock market might be slow due to expectations regarding upcoming monetary policy as some people are expecting further monetary tightening whereas others are expecting this upcycle in interest rate to end due to slow down in inflationary pressures.
Earlier there was uncertainty amongst investors regarding IMF programme but this ambiguity seems to clear out now as people have come to realize the fact that the government can’t avoid IMF programme at this stage. Sooner or later, Pakistan has to get into a program. That is why the investors’ confidence is better today than it was a two or three months ago.
Furthermore, the US-Pak ties have improved as US has been very co-operative with Pakistan for the last month, along with Pro-Pakistan statements from US policy makers. This accommodative tone from US is not only important in the context of IMF programme but will also act as a catalyst for FDI and FPI.
Also, the foreign investors are showing keen interest to invest in Pakistan due to the business friendly policies of the incumbent government therefore, positive inflow of foreign investors are expected in the ongoing year that will further trigger the market.
On the whole, the economic and political situations are signifying that most of the economic indicators will improve in CY19. Moreover, there might be slow improvement in the stock market but once the agreement is finalized with IMF, another rally might be on its way.
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