Pakistan de-coupling from global market crisis

By Muzzammil Aslam

The world is currently grappled with Yellow Vest Revolution, Brexit, trade stand-off between US-China, US Government shut-down and surprised mid-term elections outcome in US & India. All these have sent shock waves into global markets. Bear markets were witnessed across all asset classes ranging from Equities, Commodities, and partially in Bonds & Real Estate. Most importantly, US based assets, the star performer for last couple of years, also lost their steam and were seen under pressure. Obviously, these all not went unnoticed and almost all major Global Banks have consensus opinion that sooner or later the world is going to enter into recession. Although all leading indicators of recession are hit just waiting for recession to come.

The scenario is obviously not encouraging when the world’s major Central Banks balance sheets are going to contract as it sometimes poses difficulties for capital starved countries like Pakistan to generate liquidity to fund Balance of Payment (BoP).

Can we assume repeat of 2008 in 2019 for Pakistan? Interestingly, Pakistan’s only hope in 2008 was IMF. In line with Global fundamentals, Pakistan followed the world economic track and its economy remained in stagflation (low growth and high inflation).

In 2018, although the severity of Balance of Payment crisis is way taller than 2008, but surprisingly Pakistan is amassing massive sovereign bailouts purely on the ground of Geo-politics, which is decoupling Pakistan from rest of the World. Saudi Arabia in its latest budget decided to raise $32 billion through bonds internationally to fund its ailing deficits. In contrast, it announced $6 billion bailout package for Pakistan. China’s economy was hit-back with US tariffs but did not back out of its commitment from One Belt One Road (OBOR) & China Pakistan Economic Corridor (CPEC). It is expected China will flush $6 billion to rescue Pakistan. UAE is also not having best of time as far as its economy is concerned but few billion dollars are expected to come to Pakistan.

Pakistan also decoupled domestically:

The other reason what convince all partners to rescue Pakistan is its detraction from past practices. The country has speeded the Justice, crackdown on religious clerics who spread hatred, across the board accountability, implementation of rule of law & peace, and more open policies like issuance of visa on arrival for 55 countries, opening up of Kartarpur corridor for Indian Sikhs, and playing vital role to bring Afghan Taliban & US on table for peace talks.

The political & commercial repercussions are also visible. British Airways have decided to resume its operations after 10 years, Portugal have removed travel advisory, and Exon Mobil have decided to enter Pakistan once again. Approximately, $10 billion worth investments are coming from Saudi, UAE & China in CPEC.

To cut long story short, Pakistan is clearly on path of recovery and this will translate into healthy capital market performance despite of global markets struggling.

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