Economy: Important Week Ahead

Sun Dec 10 2023
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Shahzada Ahsan Ashraf

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Galileo was always fascinated by the chandelier in Pesa Cathedral. Watching it swing from one side to the other for hours. This eventually gave way to the first pendulum centric clock. Much akin to this are economic and financial markets which swing from one side to the other. However, unlike the chandelier, these swings are not at regular intervals and can cause huge stress as fortunes change.

This says something about how IMF first indicated a staff level agreement and promised a quick board approval – one side of the swing, only later to announce that it may be reviewed next month – other side of the swing. Could this be because someone forgot to add one more agenda item or could it be because the powers-be want to ensure more cooperation in terms of timely elections and/or international collaboration.

In a landmark development, MoF was able to sell PKR 36bn work of 1-year sukuk – not through Banks’ PDs (Primary Dealers), but through the PSX. This is ground breaking as it creates more channels of demand which was earlier limited to Banks, increases market depth and liquidity and evolves towards a more deregulated environment. More competition will definitely translate in to a more market-based pricing mechanism.

Pakistan, IMF, PSX, Forex reserves,

The MPC will announce the monetary policy on 12th Dec. In a poll undertaken by Tresmark, 75% of market participants expect no change in the policy, where as 20% expect a 50bps rate cut. Majority believe inflation levels to remain elevated which does not justify a rate cut at current levels. Meanwhile, Fed will announce its rate decision on Wednesday. No action by the central bank is seen as the most likely outcome, as 99% investors believe the Fed is all done tightening. While the Fed is all but certain to hold off on hiking rates next week, the upcoming meeting holds the potential for signaling changes in the central bank’s strategies regarding the course of future monetary policy actions.

Analysts have highlighted the delicate balance the Fed must strike – a challenge of taming inflationary pressures without tipping the economy into a recession.

Other Developments

– Forex reserves dipped by $286mn to close at $12.1bn

– Rs. 36bn worth of Ijara Sukuk accepted at 19.52%. Held through PSX.

– Nov 23 remittances clocked in at $2.3bn, slightly lower than market expectations.

– Weekly inflation hits almost 43% amid costly food, energy prices

Pakistan, IMF, PSX, Forex reserves,

– KSE100 index is trending along its all-time highs, surging to 66,224 points. Index is up by 34% & has gained by 16,000 points in last 2 months.

-Inflation in India is stable around the 5% mark. INR has also range bound in the 83/$ range. Growth is forecasted to be above 7% – one of the fastest in larger economies.

Amidst heavy negative news-flow (IMF, Reserves, Remittances), Rupee strengthened, quite against the run of play. This implies that the authorities are resolute about maintaining stability in the currency market. While Rupee is expected to remain, range bound till end of year, it will be strongly challenged due to backlog of import and profit payments, REER expected to cross the 100-par level and to rise materially in the over-valued territory after 30 months, and finally, due to fate of IMF board approval.

The Pendulum Clock was replaced after centuries by the relatively modern clock making a Tick Tock sound. Amongst other representations, it also began to represent a looming deadline or a count down. This cannot be over emphasized in the case of Pakistan where the slow progress of reforms threatens the economic viability of Pakistan. Unfortunately, the rate of progress remains a glacial pace.

Shahzada Ahsan Ashraf

The writer is a Former Chairman and CEO of PIA. Former Federal Minister for Industries and Production.

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