Pakistan's Imran Khan faces imminent economic crisis

The stock and bond markets have welcomed Imran Khan's victory in the disputed elections in Pakistan, but the former cricket hero faces a currency crisis and implement reforms to long term to end cycles of prosperity. 19659002] Khan's first major economic call will be to decide whether to ease the pressure on the rupee by seeking Pakistan's 12th bailout from the International Monetary Fund (IMF) since the late 1980s.

Even stronger will be to persuade more people into a nation famous for tax evasion, turn off grant taps draining government coffers, and reform deficit-making public enterprises that past governments have struggled to sell.

"The position of the country is such that now you can no longer support the status quo," said Suleman Maniya, head of research at local brokerage Shajar Capital.

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The Pakistani central bank has devalued the currency four times since December, weakening the rupee by more than 20 percent, amid efforts to avoid a balance of payments crisis in the economy of $ 305 billion.A similar scenario in 2013 allowed Pakistan to obtain a loan of $ 6.7 billion from the IMF.

While the economy is growing at 5.8%, the fastest pace in 13 years, the pressure on Pakistan's current account balance is not slowing down

The country's central bank is worried about rising global oil prices – Pakistan imports e About 80% of oil needs – and the decrease in foreign exchange reserves plunged from $ 9.4 billion in May 2017 to just over $ 9 billion.

Pakistan faces the greatest economic challenge in the country's history, "said Khan in his victory speech Thursday, where he described a reform program.

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"Our economy is down because of our dysfunctional institutions, we need to repair our systems of governance." [19659002] If Khan turns to the IMF, the Washington-based body will likely demand cuts in spending to reduce the budget deficit, which could jeopardize its populist promises to improve the lives of the poor in Au During the election campaign, Khan focused on the culture of tax evasion in Pakistan, which prevails in Southeast Asia and which means that only about 1% of the population pays taxes on income [19659007]. Khan, who promised to reform the Federal Bureau of Revenue (FBR) in his first six months in power.

He also promised to step up an anti-corruption campaign, although this analysts said capital flight may trigger capital flight in a country where vast wealth is undocumented.

Another immediate goal will be to reform state giants such as Pakistan International Airlines and various power companies. Exotix Capital, a research firm, said Pakistan's long-term prospects depended on Khan's ability to improve governance and end the culture of the powerful, tax-avoidant, state-owned companies. "Otherwise, we are simply in the same direction (advising investors): buy Pakistan to the IMF and sell before the end of the IMF loan," said Exotix in a research note.

Structural Change

Khan's reform ambitions will be strengthened by his close ties to the powerful military and judicial vision of his anti-corruption stance, analysts said.

His better than expected performance at the polls It also means that he will be able to form a coalition with a handful of small parties that will probably not oppose his reforms.

"It is unlikely that Imran Khan will be the first choice of an investor to lead a country in such a precarious position," said Carmen Altenkirch, Aviva Investors' Emerging Markets Equity Analyst.

The benchmark stock index in Pakistan has surged by about 3.5% since it became clear Thursday morning, Khan would get a strong mandate, while Pakistan's sovereign bonds rose through the curve.

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Voting, Umar told Reuters that a PTI government did not rule out asking China for a bailout instead of turning to the IMF, which he judged in part e "guilty" of the economic crisis because it allowed the last government to ignore the reforms.

"The real problem is that the competitiveness of the Pakistani economy has seriously deteriorated – culture after culture, industry after industry become uncompetitive," Umar said, blaming productivity and skill levels businesses, high input costs, lack of scale and political intervention. in some industries.

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Last updated: Saturday, 28 July 2018 KSA 14:15 – GMT 11:15