Pakistan’s Miffed Military Lull
Pakistan shares were down almost 20 percent on the MSCI frontier index into December, despite relative security calm from a new civilian-military accord empowering an anti-terror sweep in major cities and tribal lands, and continued IMF program observance on track to 4 percent GDP growth the latest fiscal year. The army chief Raheel Sharif, no relation to the prime minister, has been in charge of the crackdown following a Taliban school attack killing hundreds of children and orchestrated a slick media campaign hailing triumphs while denying interest in broader governing power. The Fund arrangement has rebuilt foreign reserves to three months imports and targeted wider tax collection in an effort to lift it to 15 percent of GDP, and enabled sovereign ratings upgrades to low junk status. In September another $500 million global bond was issued and subscribed at double the amount with 8.25 percent yield, but the reception was not as enthusiastic as last year’s return. In external accounts textile exports have flagged on the firm rupee and Gulf remittances may slow. In the domestic economy inflation is under 2 percent and the central bank has refrained from direct budget deficit funding, but spending has picked up on transport infrastructure in anticipation of China’s pledged $45 billion medium-term project windfall. Prime Minister Sharif has unveiled new bus and train lines and renovated the air terminal in Islamabad to public praise helping to silence the party challenge from former cricket star Imran Khan, who also had to recover from serious injury after a stage fall. Next year food inflation may push the rate to 5 percent and the central bank may have to reverse cuts, with the benchmark now at 6 percent.
Sri Lanka’s MSCI gauge fell over 20 percent as a war crimes tribunal was convened after the former ruling Rajapaska clan was soundly dispatched in parliamentary elections, and a 10-year $1 billion sovereign bond was floated after a previous one six months ago at a higher yield on concern over the 7 percent of GDP budget gap and currency depreciation. Interest rates have remained on hold and a $400 million swap facility with India’s central bank was tapped as the exchange rate was floated with the level set to drop below 150/dollar into 2016. The post-election fiscal plan ramped up public investment, but dropped the foreign ownership ceiling on local Treasuries to 10 percent. Economic growth will exceed 5 percent this year but inflation will rise also to that mark on rampant consumer lending which has led to the imposition of macro-prudential limits. Agricultural export prices have softened and tourism may also sputter with fewer Chinese visitors, although the administration may have backtracked on its initial intent to revisit the entire bilateral commercial and diplomatic relationship.
Bangladesh too skidded 15 percent through November with the approach of municipal election after Islamist party figures from the post-independence era were hanged for alleged war crimes. Extremist violence has spread today, with assaults on well-known secular bloggers claimed by Isis sympathizers, as Prime Minister Sheikh Hasina’s Awami League continues to harass and arrest opposition party leaders. The BNP has tried to keep its family dominance as breakaway factions demand fresh alternatives, with the standoffs entrenching both political and economic animosity.
