IMF Review- thumbs up for now; tougher tests ahead – KASB Research
By: KASB Securities & Economics Research
An IMF mission concluded the first review of Pakistan’s new US$6.6bn IMF program and reported satisfactory performance. The IMF Executive Board will consider this review by end Dec-13, upon approval of which a US$550mn loan tranche will be released.
The mission expressed overall satisfaction with the pace of structural reform; all quantitative targets set for Sep-13 have been met, apart from the FX reserves target. The IMF has upgraded its GDP growth assumption for FY14 to 2.75%, from 2.50% previously.
The IMF stressed on rebuilding FX reserves and got re-affirmation from the government to align monetary and exchange rate policies to achieve this objective. To us, this means both higher interest rates and currency weakness in the coming months.
The real test in our opinion will be in the Mar-14 and Jun-14 quantitative targets, in which both the SBP FX reserves target and the govt borrowing ceiling from SBP are quite ambitious.
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