South Asia’s Stricken Presidential Stand

The Pakistan and Sri Lanka stock markets sold off as prime minister Sharif and President Rajapaska respectively tried to hold on to power in the face of opposition attacks and supporter defections. The former’s state oil company stake offering was further delayed but the IMF is due to release the next $1 billion tranche despite the setbacks and missed central bank deficit financing and foreign reserve targets. GDP growth flagged the past quarter on export and manufacturing weakness but a 50 basis point benchmark interest rate drop and lower oil prices should return it to 4 percent on high single-digit inflation. The budget deficit improved to 5 percent of GDP but tax revenue barely budged as collection overhaul hit administrative and legal roadblocks. In the balance of payments the small current account gap has been offset by a 15 percent remittance rise and another portfolio inflow from a reopened sovereign bond bringing reserves toward $10 billion as the currency settles at 100/dollar. Clerical critics of the administration have pulled back as party adversary Khan continues his campaign on claims of election fraud and inadequate electricity and security. In next-door Afghanistan the Taliban have resumed suicide bombings against military and aid installations following establishment of the new leadership there with technocrat President Ghani in charge. The former World Bank executive has stressed project implementation and anti-corruption with donors and has promised to punish perpetrators of the Kabul Bank collapse and promote delayed commodity joint ventures. Sri Lanka, which has spurned both the IMF and UN after it claimed civil war human rights abuses was surprised as the President called elections two year ahead of schedule and then was challenged by a former cabinet ally over his family’s far-reaching control. Construction, tourism agriculture and textiles sustain 7.5 percent growth and inflation has come down to 5 percent as the central bank throttles margin credit. With poll spending the budget gap may again blow out to over 5 percent of GDP as the trade deficit will shrink on declining energy imports. The President’s 60 percent landslide after defeating the Tamil rebels will not be repeated, but legitimate political rivals have been silenced or arrested and the exercise may not be valid in the absence of international observer involvement.

In Mongolia in contrast a no-confidence parliamentary vote sent the prime minister packing to the relief of foreign investors decrying too harsh a line toward the next $5 billion phase of the OT mine, which may now start in the first quarter of 2015. The chief executive of Rio Tinto’s operation running the project also resigned for a clean slate as the pace of economic overheating has dwindled. Credit growth is still above 20 percent but half the early year level on 15 percent inflation and a 10 percent of GDP current account hole. A Chinese swap arrangement intends to keep reserves at the critical three months import minimum in a belated stand.