Summary The report said that the government would have to increase focus towards privatisation.
(Web Desk) – Pakistan Stock Exchange (PSX) is likely to surge following an agreement with the International Monetary Fund (IMF), while it has a long history that in the post-program scenario, index had surged sharply as it helped restore the confidence of local and foreign investors as well.
In sight of the ongoing discussions with the IMF team and the recent changes in key government positions, Topline Securities opined that Pakistan would enter IMF program by June.
“We believe that Pakistan’s case is not as acute as Egypt because Real Effective Exchange Rate (REER) index is around 100 (Egypt was 130 before program) and there is no subsidy on fuel (in Egypt fuel subsidy still continues)”, said a report of Topline Securities under the topic of “Pakistan Economy IMF program and its implications”.
The report said that the government would have to increase focus towards privatisation, and restructuring the loss-making state-owned enterprises.
Further, energy sector reform and resolution of outstanding circular debt would also be a part of the IMF program.
To note, benchmark KSE 100 index rallied on average by 37 percent in 12 months post IMF deal based on last three IMF programs.
“We attribute the improvement in market sentiment during IMF program to improved external account situation on receipt of foreign flows and stabilisation on macroeconomic front”, the report said.
“Now based on the assumption that Pakistan would get a new IMF loan soon we are maintaining our index target range of 40,000-45,000, providing total return of 12-26 percent from here.”
The report highlighting the revenue maintained that the tax revenue and budget deficit target would be the sticking points in the ongoing IMF negotiations as 10-month tax revenues show shortfall of around Rs345 billion (0.9% of GDP) while budget deficit is expected to exceed 7 percent in FY19 after a gap of five years.
“IMF will demand rupee (PKR) to be free-floated and we expect it to settle in the range of Rs 160-165 by Dec 2019 given expectations of REER below 100.
“Given increased taxation measures to shore up revenues, reduction in subsidies and devaluation, we expect inflation to average in low double digits in FY20. We expect Central Bank’s policy rates to peak at 12 percent during 2019."
The IMF program is expected to include key technical benchmarks including Net Domestic Assets (NDA) and Net International Reserves (NIR) targets, which will help reduce borrowing from the Central Bank and increase FX reserves, respectively.
