Following the September 13 attacks on the US embassy in Kabul , Pak-US relations which were already fragile after Abbottabad incidence has now come under considerable strain. With political temperature rising, fresh allegations by US against Pakistan have added fuel to the fire. We have already highlighted in our report, Pakistan Investment Strategy Update 2011, dated September 14, 2011 that US being the major trading partner, Pak-US relation would be major factor which could set the tone for the market for remaining 2011.
US Senator Lindsey Graham has said that US may have to consider a military response to the government of Pakistan’s alleged support of a terrorist group that attacked the American embassy in Kabul . He says that “we need to put Pakistan on notice,”. As a result Pakistan top military commanders in an emergent meeting on Sunday resolved to respond materially to any attack launched on Pakistan from US managed Afghanistan . On the other hand Pakistan PM has contacted political leadership to discuss the latest development in the backdrop of threatening statement by US.
Pak-US relationship, marked by periods of both cooperation and discord, been put under considerable strain in recent times after the Abbottabad incidence and Obama’s administration decision to hold back around $800 million military aid to Pakistan , which also includes $300 million of Coalition Support Fund (CSF). Strained relationship with Pakistan’s largest export market (approximately 18 percent contribution to export) and biggest donor ($21 billion since 2001), could have negative bearing for Pakistan’s economic health. Keeping in view
Pak-US relationship, marked by periods of both cooperation and discord, been put under considerable strain in recent times after the Abbottabad incidence and Obama’s administration decision to hold back around $800 million military aid to Pakistan , which also includes $300 million of Coalition Support Fund (CSF). Strained relationship with Pakistan’s largest export market (approximately 18 percent contribution to export) and biggest donor ($21 billion since 2001), could have negative bearing for Pakistan’s economic health. Keeping in view
1) reduced foreign inflows,
2) uncertainty surrounding Pakistan ’s relationship with IMF
3) trade balance being faced with adverse commodity price shock;
non-availability of CSF would exert additional pressure on country’s current account. Subsequently, this could result in more than desirable Pak Rupee depreciation against the greenback and reduce liquidity in the secondary market.
The global sell-off in stocks and commodities bodes ill for Pakistan market that has been one of the best performing market in Asia after Sri Lanka so far in 2011. The recent tension in relationship with US is another negative for Pakistan market that trades at 2-year low PE of 5.9 with dividend yield of eight percent.
On the currency front, strained relationship with the country’s largest trading partner and biggest donor, pose a major risk to country’s external account which is already faced with commodity price shock and IMF’s SBA scheduled loan repayment of $1.2bn. This in turn could escalate country’s current account deficit from our initial target of 1-1.5 percent of GDP, thus rendering into more than desirable Pakistani depreciation against the greenback. However, with many things still not clear at the moment we keep our base-case assumption of current account and 4-5 percent Pak Rupee depreciation against the Dollar, intact. Any sort of economic sanctions may have a major impact on local currency, we believe.
On the currency front, strained relationship with the country’s largest trading partner and biggest donor, pose a major risk to country’s external account which is already faced with commodity price shock and IMF’s SBA scheduled loan repayment of $1.2bn. This in turn could escalate country’s current account deficit from our initial target of 1-1.5 percent of GDP, thus rendering into more than desirable Pakistani depreciation against the greenback. However, with many things still not clear at the moment we keep our base-case assumption of current account and 4-5 percent Pak Rupee depreciation against the Dollar, intact. Any sort of economic sanctions may have a major impact on local currency, we believe.
No comments:
Post a Comment