Carmen Altenkirch, Emerging Markets Sovereign Analyst at Aviva Investors, comments on the outlook for Pakistan following the preliminary election results this morning:
“Pakistan is running short on dollars, with foreign exchange reserves about enough to cover the country’s funding requirements for the remainder of the year. Imran Khan is unlikely to be any investor’s top choice to run a country in such a precarious position, but any leader with the ability to form a government and take hard decisions is better than a protracted stalemate.
“Preliminary results suggest that Khan’s PTI and Bhutto’s PPP will be able to form a working majority in Congress. While, Imran Khan has been less than complimentary towards the IMF in the past, we are taking the view that Pakistan is running short on options, and will be back knocking on the Fund’s door for money and help sorting out the country’s economic problems.
“Bonds have rallied on the expectation that Pakistan will do just that. We expect yields to tighten further over the coming months and are positioned to take advantage of this move. However, the risks are many. Allegations of vote rigging could delay the formation of the government.
“Khan could decide that home-grown consolidation and Chinese loans are an easier option than the IMF’s long to-do list. In our view, Pakistan joins Ecuador and Zambia as a country short on dollars and long on financing requirements who should approach the IMF. We expect Pakistan to be first in the queue.”