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May 6, 2018

Imran hints at approaching IMF after coming to power

National

May 6, 2018

LAHORE: Pakistan Tehreek-e-Insaf(PTI) Chairman Imran Khan has hinted at approaching the International Monetary Fund (IMF) after coming to power, besides establishing constructive ties with the US.

In his last visit to United Kingdom, Imran Khan had a private meeting with an equity investment company Exotix Capital, which advises the international investors about emerging financial markets and economies around the world.

According to the report, prepared by the Exotix and shared with its clients, stated that Exotix hosted meeting with the opposition PTI leader, Imran Khan, in the UK.

During the meeting, Imran Khan admitted that the IMF assistance for economic policies and financial matters might be necessary. The meeting was not declared to the public and no report was published in the media about the meeting.

Imran Khan also expressed his pragmatic approach for constructive US relations. Additionally, the PTI chairman also expressed concerns about lack of transparency in China-Pakistan Economic Corridor (CPEC) and other Chinese led infrastructure projects.

According to the report, a copy of which is available with The News, the Exotix Capital termed it surprising remarks by the Imran Khan. The report started with “Reluctant acceptance that IMF assistance may be necessary, pragmatism on the need for constructive US relations, regret over the lack of transparency of pricing in Chinese-led infrastructure projects: these were Khan’s surprising remarks.”

The Exotix Capital report stated that “His (Imran Khan) comments on the IMF and the US should provide reassurance to investors, particularly foreign ones, who are skittish about the unknowns represented by the PTI.”

Furthermore, “The comments on Chinese projects should be seen, in our view, not as signalling potential contract revisions (in the style of Sri Lanka), but rather as an admission that little can be done about contracts already signed and to contrast the sort of transparency and more open bidding promised for future projects.”

The Exotix Capital was less surprised with the PTI chairman remarks about coming to power after the next general election. The report stated, “Less surprising were his remarks conveying optimism on his party’s chances in the upcoming election, an uncompromising conviction in targeting corrupt individuals and institutions, and his goal to widen the tax collection net.”

Interestingly, the Exotix Capital in its previous reported released to the investors on February 25, 2018 stated: “We judge there is a 50% probability of the most market-friendly outcome – that is another government led by the current ruling party, the PML-N (the Sharif brothers). We see a 35% probability of the most market-negative outcome (although, ironically, the most positive in terms of initiating structural reforms) – a multi-party coalition government led by the PTI (Imran Khan).

“We see a 15% probability for a market-neutral outcome of an extended, de-politicised, interim administration (either as a result of delayed or disputed elections or due to protracted negotiations among the political parties following a hung Parliament). We see 0% probability of martial law.”

However, after meeting with Imran Khan, new report, which was released to the investors on April 24, 2018, changed the chances of the winning of election in favour of Imran Khan by increasing it to 50 per cent for PTI and reduced PML-N probabilities to 40 per cent.

The Exotix Capital April report stated “Election probability scenarios have shifted in PTI's favour.”

Furthermore, “Independent of any remarks made during the meeting we hosted, in this report we update the probabilities we assign to different election scenarios.

“In the two months following our report in which we previewed the Q3 18 election, the following key political events have occurred: 1) the judicial confirmation of former PM and ruling party (PML-N) leader Nawaz Sharif’s lifetime ban from public political office (which not only strips the party of its leader of the past three decades, but also makes it difficult for his brother Shahbaz Sharif, who succeeded Nawaz as party leader, is currently Chief Minister of Punjab and is the party’s de facto PM candidate post-election, to distance himself from Nawaz’s tirades against the judiciary and, in our view, by implication, the army); 2) the arrest of additional officers in the provincial government run by Shahbaz Sharif, on suspicion of corrupt business practices in the alleged Ashiana housing scam, 3) the start of breakaway groups from the PML-N, for example the JBSM south Punjab; and 4) the start of defections away from parties, such as the MQM-P in Karachi, prepared to act in coalition with the PML-N.

“This persuades us that the probability of a PTI-led coalition government emerging from the election has increased. We change our probabilities to 40% PML-N, 50% PTI, 10% extended interim and 0% martial law from 50% PML-N, 35% PTI, 15% extended interim government, 0% martial law.”

The report further stated “A PTI-led coalition will likely drive three concerns that may significantly negatively impact the pricing of Pakistan (local currency) equities and (US$-denominated) sovereign debt in the short term: 1) the flight of capital of vested interests in the undocumented economy, which enjoy tacit protection under the current government; 2) the coherence of coalition civilian politics after five years of an absolute majority under the PML-N; and 3) untested (or unknown) macroeconomic policies of the PTI compared with the known (however, imperfect) ones of the PML-N. A flexible attitude to the IMF alleviates some of these concerns, at least for foreign investors, but the trailing PB of the KSE100 is also back to its five-year mean after a 13% ytd rally in US$ total return terms. Long term, our view remains that the PTI (as long as it remains under the charismatic leadership of Khan) represents Pakistan’s best hope for structural reform, in terms of the following: 1) efficiency improvements in its bureaucracy and state-owned enterprises; 2) a widening of the tax net (as opposed to the hiking of tax rates on the existing narrow base); 3) address of network theft and non-payment in the electricity sector; and 4) re-engagement with the human and financial capital of the 7m-8m Pakistan diaspora.”

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