ISLAMABAD
Pakistan’s economy and market managed to survive the political upheaval in the country and business community is confident about increasing trend in the market following initial downtrend.
Following the disqualification of former Prime Minister Nawaz Sharif by the Supreme Court on July 28, the Pakistan stock market in Islamabad and the Karachi stock market reacted mildly and after an initial fall during the first few hours of announcement, stock markets began recovering gradually.
However, due to continued instability in the debt servicing and falling reserves, the Pakistan rupee has lost around 3 per cent value against the dollar.
Manzoor Ahmed, a Karachi broker, told Gulf News that “Sharif’s ouster was supposed to critically affect the stock market but surprisingly the market did not suffer any major shock and stabilised within few hours.”
Rupee pressure
State Bank of Pakistan (SBP), the country’s central bank. confirmed a decrease in reserves by $3.9 billion between October and July 21, even though the Government had borrowed little more than $4.4 billion in 2016-17, according to a report published in Dawn newspaper on August 2.
However, the State Bank intervened quickly to support the currency fall, and by August 3 the rupee recovered from its high value of Rs108 to Rs105.40 per dollar.
Economic experts are warning that rising debt servicing could lead to a bigger jolt in currency market.
The government is hesitant to release the official figure for debt servicing on external loans but the combined amount for the first three quarters has reportedly already surpassed $5.2 billion. The government has paid around $1.55 billion in the first quarter, $1.25 billion in the second quarter and $2.43 billion in the third quarter.
The debt servicing during the last quarter of the year was around $2 billion which may increase the annual debt servicing to a record $7 billion. If debt servicing continues to rise and foreign reserves decline further, the rupee will be under more pressure. In early July, the Pakistani stock market suffered its first shock soon after Joint Investigation Team (JIT) presented their investigation findings and suggested the ouster of Prime Minister Nawaz Sharif. The rupee suffered its biggest one-day loss since 2008 and closed at its lowest value in three and a half years.
Forex Association of Pakistan President Malik Bostan termed the scenario as an “earthquake for the currency market which badly shakes investor confidence.”
Currency dealers say there is panic because of political uncertainty. A further shock came when former Finance Minister Ishaq Dar promised the government would maintain the exchange rate, only for the rupee to drop more than 3.1 per cent.
With Sharif’s disqualification, the Karachi Stock Market initially plunged and the KSE-100 Index fell close to 3.6% or 1,670 points as investors ducked for cover. However within next 24 hours the share prices rose as the market absorbed the news.
New Prime Minister
Pakistan’s new Prime Minister Shahid Khaqan Abbasi has created new ministries and divisions created for swift implementation of economic policies. This initiative has been appreciated by the business community.
Zahid Mazhar, the Acting Chairman of All Pakistan Textile Mills Association (APTMA), welcomed Abbasi’s first speech in parliament in which he said that he wanted to do the work of 45 months in his short tenure of 45 days.
But he urged the new PM to place the revival of economy and textile industry on top of his 45-day agenda. “The new premier has taken charge when economic conditions had reached a very alarming stage,” Mazhar warned, hoping that the prime minister would work for the revival of textile industry even in the short span of 45 days.
Mazhar said the government has overlooked the continuous decline in exports and the drastic fall in shipments, and must give immediate attention to the export sector, especially in the textile industry, hit hard by energy costs he said were about 30 per cent higher than the regional competitors. “Any further negligence or delay will take the economy to a point of no return,” he cautioned.
Mian Zahid Hussain, President of Pakistan Businessmen and Intellectuals Forum, appreciated the swift political transition, which has encouraged the business community. However, he also warned that “Urgent steps are needed to improve the situation otherwise our forex reserves will fall and the country will have no option but to seek another IMF loan.”
Textile sector
The Islamabad Chamber of Small Traders has welcomed the decision of the outgoing government to inject Rs15 billion into the textile sector.
Islamabad Chamber of Small Traders’ Shahid Rasheed Butt said that decision to provide Rs15 billion by August 14, 2017 was commendable and it should be implemented on time to boost confidence in the textile industry. He insisted on adopting measures to control imports and increase exports for economic development and industrial growth.
Mazhar said the textile industry was capable of bringing the economy out of the current difficult condition. “It can generate employment and at the same time achieve export target of $36 billion provided immediate decisions and policies are made to support it,” he said.
According to another official report, cotton yarn worth $1.243 billion was exported during last financial year ending on June 30, 2017 compared to last year’s export of $1.264 billion. Cotton yarn exports from the country during the period under review decreased by 1.69 per cent as against the exports of last year, according the data of Pakistan Bureau of Statistics.
Investment targets
Pakistan government is hoping to achieve a growth in investment at the rate of 17.2 per cent of gross domestic product (GDP) during the current fiscal year 2017-18, news agency APP reported.
Meanwhile, the investment under China Pakistan Economic Corridor (CPEC) is also estimated to advance the overall investment atmosphere.
The total investment for the fiscal year 2016-17 was reportedly to be 15.8 per cent of GDP while the fixed investment to GDP ratio faintly raised from 14.0 per cent in 2015-16 to 14.2 per cent in 2016-17, against the target of 16.1 per cent.
A new IMF package?
A senior economic affairs expert has warned that Pakistan may be heading towards another package from the International Monetary Fund (IMF). Khaleeq Kiani, writing in the Dawn newspaper on July 31, warned that “the question about the need for another bailout programme from the International Monetary Fund (IMF) sometime around the upcoming political transition is again gaining ground.”
Kiani said that the [country’s] fiscal account, after showing marked stabilisation over the past four years, was declining, as evident from the 2016-17 budget deficit that was higher than a year before as tax machinery was Rs250 billion behind target. “The external account is on an even more precarious path as all of its three key sources are going down, stagnating or not picking up,” he said.
He added that the deficit for the last fiscal year is estimated to be one per cent higher than the 3.8 per cent target despite changing definitions of revenue and financing items and a Rs110 billion cut in federal development spending.
“At the heart of problem lay the inability of the government to push through critical structural reforms, particularly on account of public sector entities and the power sector,” Kiani warned.
The stability of forex reserves would depend on international oil as the current account deficit expands, he said, quoting officials. “Pakistan may be going back to the IMF in case oil prices make any steep increase, which does not appear forthcoming in the immediate future.
“This was the reason behind the previous IMF programme and may be the route to the next one,” he noted.
