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Pakistan's leader-in-waiting pledges reforms ahead of crucial IMF talks


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Pakistan's leader-in-waiting pledges reforms ahead of crucial IMF talks

Pakistan's likely next prime minister Imran Khan pledged wide-ranging reforms in a country he said faced serious governance and economic challenges, with analysts saying he should move swiftly to seek a deal with the International Monetary Fund.

Former cricket star Khan, who captained Pakistan to a World Cup victory in 1992, vowed July 26 to enact business-friendly policies and overhaul an economy troubled by dwindling foreign exchange reserves and a growing trade deficit. He said his government would work toward creating jobs for Pakistan's approximately 200 million people and bringing in overseas investment, the flow of which, he claimed, has been hampered by corruption.

The unemployment rate in the nuclear-armed nation has hovered around 6% over the past few years.

Khan's Pakistan Tehreek-e-Insaf emerged as the biggest party in July 25 elections marred by violence and allegations of widespread vote rigging. While short of an absolute majority of 137 seats in the National Assembly, the PTI bagged more seats than expected, paving the way for it to form a federal government with smaller coalition partners.

The stock market cheered Khan's victory, with the benchmark Karachi Stock Exchange 100 Index surging 1.81% July 26 and another 1.66% July 27.

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Former Prime Minister Nawaz Sharif's Pakistan Muslim League-Nawaz, or PML-N, came in second and the Pakistan Peoples Party, led by Bilawal Bhutto Zardari, the son of assassinated two-time prime minister Benazir Bhutto, was third. Sharif, who was disqualified in 2017, was jailed earlier in July on corruption charges.

Khan said the PTI would strengthen institutions and introduce across-the-board accountability, while hammering out policies for the least well-off. He said his government will cut spending and increase revenue by clamping down on income tax evasion.

One of the first tasks for the new government will likely be negotiating an aid package with the IMF. Pakistan's foreign exchange reserves are shrinking and its current account deficit is widening, so any delay in an IMF deal could drive further foreign exchange rate weakness, according to a note from Exotix Research.

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Pakistan has devalued its currency 18% and raised interest rates by 75 basis points since December 2017, according to Exotix Capital.

The current account deficit totaled $17.99 billion in the fiscal year 2018, compared to a deficit of $12.62 billion last year, according to central bank data. The trade deficit jumped to $37.67 billion from $32.49 billion over the period.

Exotix Capital expects IMF financing of $9.9 billion over the next three years, which would be the biggest package extended by the Fund to Pakistan so far. The IMF granted the country a $7.6 billion loan in 2008 and another $6.6 billion loan in 2013.

Asad Umar, front-runner to become finance minister, said the government will look at all options, including negotiating with IMF, to re-energize the economy, The Express Tribune reported.

"Emergence of a clear mandate [to form a federal government] should result in strong market performance in the near term," AKD Research said. "That said ... investor sentiment is likely to take cue from the incoming government's initial policies particularly with respect to entry into an IMF program."

"Political risks will be compounded by the near certainty that the next government will be forced to seek emergency assistance from the IMF in order to stave off a balance-of-payments crisis," said Christopher McKee, CEO of New York-based PRS Group, which provides political risk and country risk forecasts.

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There have also been claims of vote-rigging and manipulation of the results, with the former ruling PML-N party complaining of a targeted crackdown by Pakistan's powerful Army, which has denied any political intervention.

The country has been ruled on and off by the military in the past.

Three candidates were killed in the run-up to the polls, with a blast outside a polling station in Quetta claiming at least 31 lives on July 25, Geo News reported.