Jahangir Tareen, an erstwhile very public and central ally of Prime Minister Imran Khan and the governing PTI party, has announced a new group to lobby against what he claims is unfair treatment during the legal investigations into his alleged defrauding of shareholders, money laundering and sugar price manipulation.
Similar to the opposition protests in October, the Senate elections in March, when the incumbent finance minister failed to win his seat, and the subsequent vote of confidence, we expect the fears of some investors around this incident will prove similarly overdone.
Tareen has held no public post within the government or the PTI since his lifetime disqualification by the Election Commission (subsequently upheld by the Supreme Court in 2017-18), but he has remained an 'éminence grise'.
Most media reports, in our view, materially overstate the risk faced by the PTI government from this new group. Tareen has not only pledged loyalty to the PTI agenda on behalf of his group but the size of the group is, in any event, likely too small to break the PTI-led government majority in the lower house of the national parliament.
The PTI-led coalition has 54% share of seats; ie 12 National Assembly members would need to 'defect' and, we understand, merely around half of this number can be counted among members of Tareen's group.
However, the risk to the PTI-led coalition (53%) in the provincial parliament in Punjab, from where we understand most of Tareen's supporters are, is more material should his group adopt a dissenting stance.
We continue to regard Pakistan as an under-appreciated story of governance reform – the key takeaway from this story is precisely that such a close ally of Prime Minister Khan appears frustrated that he is NOT enjoying special treatment on his election disqualification appeal or in his current investigations, a glaring contrast to the experience of close associates of many previous leaders during their tenure.
The equity index (KSE 100) is cheap relative to history too, with trailing PB and PE on 30% and 26% discounts to their respective 5-year medians, and FX rate risks appear contained (the current account deficit in 2021 is 1.5%, according to IMF forecasts, and FX reserves cover just under four months of imports and 2x short-term external debt maturities).
Pakistan: The reform story foreigners forget, February 2021