LAHORE - Slow progress on restructuring of Public Sector Enterprises (PSEs) is one of the major failures for the current government though legal issues are hurdle, the new government needs to fix this issue on war footing basis, suggested financial experts on Tuesday. They said that despite IMF facility, balance of payment is another concern for the finance managers, which is putting pressures on the country’s forex reserves. 

According to the latest figures, during FY 2013-14 to date, central bank’s forex reserves have declined by $1.8 billion to $4.2 billion, which is also affecting rupee miserably. It is expected that reserves will remain under pressure throughout FY14 while rupee may devalue by 10-11% in FY14. In Fiscal year to date, the local currency has already depreciated by 7%. Hoping prompt economic recovery, investors largely greeted election of PML-N in May 2013. However, optimism started to fade out due to expectations that were beyond government capacity in addition to the painful economic reforms and its delayed results. Local bourse also mirrored the same shift as benchmark KSE100 Index appreciated by 31 per cent from 16,905 in the start of 2013 till Nawaz Sharif’s oath taking on June 05, 2013. However, the index has inched up by 5.8 per cent during the current regime.

Experts are of the view that major victories that go into government pockets include improved higher tax collection, circular debt resolution, rationalized energy prices and $6.7 billion IMF facility. However, people are also voicing their criticism on the resultant inflation, falling forex reserves, low economic growth and slow restructuring of Private Sector Enterprises. Noted financial expert Zeeshan Afzal from Topline Securities, believe that the current government still enjoys the faith of public because six months are too little to judge performance while the government has taken several positive, but painful, steps. Recent International Republican Institute survey also shows that 58% of population has rated the government’s performance as good.

On the balance of payments side, biggest achievement of the government is to secure IMF EFF facility of $6.7b, which has evidently avoided default, he said. As per IMF, the programme is broadly on track and within the target limits which shows seriousness of the government to implement reforms. Zeeshan said that though nothing concrete turned out on privatization, steady position of govt and unveiling plan shows govt seriousness.

On discount rate, experts believe that falling reserves, rupee depreciation and double digit CPI will be the dominating factors in coming MPS. Incorporating all, they maintain initial call of further monetary tightening in November MPS with the higher probability of 50bps increase while low probability of raising 100bps in one go is also there. Increase in discount rate will also enable govt to raise money from commercial banks and improve yields on local currency.

Experts observed that every sweet has its sour. The fiscal reforms have also resulted into hike in prices of essential items. Resultantly, CPI increased to 8.3% during 4MFY14. For FY14, he expects 9.5-10.5% inflation versus 7.36% in FY13. Fearing high inflation in FY14, SBP has also increased DR by 50bps in FY14 to date. He expects that SBP will further increase DR in coming months, which is good to curtail currency depreciation and inflation but will slow down the economy. Now, IMF is expecting Pakistan’s GDP to grow by 2.75% against Govt budgeted 4.4%.