Pakistan Strategy Report December 2009 by JS Global

Macro: A year of stabilization

Post the commodity shock, Pakistan has undergone massive structural
adjustments mainly led by IMF’s guidelines. Though the fruits of reforms are
evident from the recent macro data as well as the ‘Stable’ outlook given by the
sovereign rating agencies, the deteriorating law & order situation and ongoing
global recessionary woes have prolonged the prospects of recovery, in our view.
The expected liquidity stimulus was delayed due to the non-fulfillment of Friends
of Pakistan’s commitments, US’s late approval of the Kerry-Lugar bill and a lag in
the release of the Coalition Support Fund. This in turn affected domestic liquidity
and kept short-term rates at higher levels, despite SBP reducing the policy rate by
250bps in 2009. Nevertheless, we term year 2009, as a year of achievement, as
Pakistan’s establishment has taken bold macro economic initiatives to eliminate
long-standing structural flaws by doing away with fuel & electricity tariff subsidies,
introducing banking and tax sector reforms and more. Interestingly, the reforms
carried out in 2009, have strengthened Pakistan’s economic governance when
compared to global economic power houses like China and India, as both
continue to subsidize power & fuel in their respective countries. The International
Finance Cooperation assigned Pakistan the 85th rank vis a vis China’s 89th and
India’s 133rd among countries in terms of ‘ease of doing business’ in 2010.

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