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A new government led by Pakistan's new leader Imran Khan will have to act quickly to deal with an economic crisis.
The party of the former cricketer won on Wednesday after preliminary results. Khan said in a televised speech that he will focus on improving the lives of the poor and fighting corruption. Shares rebounded Thursday, with the KSE100 index gaining 1.8%. The rupee has changed little at 129.125 against the dollar.
One of the first challenges it will face is to ease the crisis of foreign exchange reserves. The nation's buffers have steadily declined as a result of increased imports and debt, forcing the central bank to devalue the currency four times since December. All this in a global context of rising oil prices, trade war tensions and liquidation of emerging markets.
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For many Pakistani observers, a bailout "The IMF program is inevitable," said Ehsan Malik, general manager of Pakistan Business Council in Karachi. "The government and the opposition should join together to use it to address the immediate problem and the fundamental flaws that have led to the declining role of the manufacturing industry in the world. economy. "
Here are some of the key economic challenges facing new leaders:
Slump Reserves
Pakistan's Reserves Falled at the Fastest Rate in Asia at $ 9.1 Billion, According to Data compiled by Bloomberg . According to Bilal Khan, chief economist at Standard Chartered Bank Plc, reserves are now below the level reached when the country approached the IMF twice to get a bailout.
Weak reserves mean that the nation has less money to pay. The imports needed to maintain economic growth and for the central bank to maintain monetary stability.
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IMF bailout
If Pakistan is heading to the IMF for help, this is not will not be the first time. The nation has had 12 loan programs with the IMF since the late 1980s and could seek between $ 10 and $ 15 billion from the Washington-based lender in the coming months, according to Insight Securities based in Karachi
. like to rule public deficits and tighten monetary policy. The Pakistani central bank has already raised interest rates to 7.5% three times this year.
"The IMF will not be so easy this time," said Mohammed Ali Hussain, research director at Frontier Investment Management Partners Ltd. which manages $ 2 billion of badets. "Many structural reforms have been delayed or were not made the last time.They will be much more severe in the process of implementation, be it its privatization program, the modernization of the economy. tax infrastructure, broadening the tax net, it will not be easy on the ground. "
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The trade gap has widened despite multiple measures to restrict imports and boost exports in recent months. This pushed up the current account deficit from 42 percent to 18 billion dollars until June
A boom in economic growth and billions of dollars in Chinese infrastructure fueled the demand for electricity. Imports and increased the national debt. Moody's Investors Service lowered the nation's credit outlook to a negative level as external balances were weakened.
Any loan from the IMF can be accompanied by harsh measures to reduce the current account gap, which could have repercussions on economic growth. said Hamad Aslam, director of research at Elixir Securities Pakistan Pvt. in Karachi. The economy is expected to slow for the first time in six years to 5.2% in the year from July, according to the average of six economists surveyed by Bloomberg .
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In the longer term, the authorities will have to find ways to boost exports to improve the current account balance. Tariffs currently favor commercial imports over the manufacturing sector and "if the country fails to address these fundamental flaws, the imminent IMF program will not be the last," said Malik, Pakistan Business Council
. The structural problems that a new government will have to resolve is low tax compliance. While Pakistan has increased its tax-to-GDP ratio in recent years to 12.5 percent in June, it remains among the lowest in Asia and the world.
Most of the government's tax revenues come from indirect levies, and there is According to Shabbar Zaidi, a partner of AF Ferguson & Co., based in Karachi, a subsidiary of PricewaterhouseCoopers LLP, a huge pool of oil and gas. untaxed money in real estate and savings instruments, as well as non-reporting of income that can be exploited. This could help the nation double tax revenue to 8 trillion rupees in two years, he said.
"I promise to protect taxpayer money," Khan said Thursday. "We will convert the houses of governors into hotels instead of saving the taxpayer money on the maintenance of politicians."
@ 2018Bloomberg
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