Uncertainty prevails on political front amid persistent macro concerns

Despite the new government stepping up and forming a Cabinet with stakeholders from all coalition parties, political uncertainty continues to rise in country in wake of demand for new elections has carried on to pick up pace.

Coupled with bleak outlook of the economy weighed in on business’ sentiment throughout the week, IMF projected Pakistan’s GDP to inflation estimates to deteriorate to 4/11.2 percent during current fiscal.

The new Finance Minister, Miftah Ismail, took charge of the portfolio and immediately stressed upon resumption of IMF program to ease off pressure building on the forex reserves while addressing concerns with regards to the external funding gap. Commenting on the economic position of the country, Miftah highlighted that current landscape is challenging and tough measures would be needed to regain confidence of IMF and put the economy back on track.

Resultantly, reversal of fuel and electricity subsidy, reduction in circular debt, discontinuation of amnesty schemes, rise in electricity rates and fiscal savings are the key conditions put forward by IMF.

The announcement instilled caution in wake of ex- tended runaway inflation during coming months and possibly further monetary tightening which was also hinted by the MTB’s auction conducted during the week.

On account of weak macro outlook and hefty import bill, despite a marginal 0.1 percent week on gain in forex reserves, Pak rupee continued to lose against greenback and depreciated by 2.8 percent.

On the international front, crude oil prices declined during week despite the production of 1.45mn bpd by OPEC, which was lower than its target for March following the demand concerns.

However, it’s being hoped that resumption of IMF program and Chinese corporate debt rollover should stabilise pak rupees on the back of policy rate hike and fiscal measures taken by State Bank.

Moreover, with inflation readings only expected to worsen in the coming months, business sentiments and overall participation is likely to remain on the lower side.

Additionally , Forex reserves have declined to USD 17.1Bn while  reserves with SBP have slid to USD 10.9Bn mainly on account of high external debt servicing and rising import bill. Resultantly, Pakistan Rupee largely negated the gains seen in the previous week to close at PKR 186.7/USD, taking dip of 2.8 percent on week on basis, which is expected to remain under pressure, as essential imports maintain multi-year high price levels, until funding is arranged.

Major data releases during the week included: SBP raised PKR 854Bn as T-bill yields soared by 70/60/55 bps for 3/6/12 month paper. Second data was of Trade deficit for the month of March 2022 that clocked-in at USD 3.6Bn, which climbed up by 12 percent on year on basis to take nine month of present fiscal figure to USD 35.5Bn pushing to 71 percent on year on basis.

Secondly, Textile exports surged by 19.9 percent on year on basis during March while LSM posted a growth of 8.4 percent yearly during February this year.

Whereas country’s petroleum and food imports swelled by 60 percent during nine months of fiscal 2022.

Thirdly, forex reserves in the country clocked-in at USD 17.0Bn that swelled to 0.1% percent on weekly basis and forth was the Banking sector deposits that clocked-in that at PKR 20.5Tn during March registering an increase of 2.8/14. Percent on yearly basis.

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