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Oil price hike will likely hit Pakistan shares
Pakistan's decision to finally raise domestic oil prices on Friday came as a significant setback to not just the economy, but also the industrial sector and, in turn, the stock market.
- By Farhan Bokhari, Special to Gulf News
- Published: 00:32 March 2, 2008
Islamabad: Pakistan's decision to finally raise domestic oil prices on Friday came as a significant setback to not just the economy, but also the industrial sector and, in turn, the stock market.
Analysts across the Karachi Stock Exchange (KSE) had said for long that the government's control over oil prices at a time when global crude prices were at an all-time high helped industry.
While soaring international oil prices made it hard for a number of other countries to keep up with the pressure, Pakistan kept prices subsidised. In the end, the last government preferred a fast growing fiscal deficit to passing on higher oil prices to consumers.
The government's move to deal with oil prices could well mark the beginning of a long overdue effort to deal with a difficult problem. And yet this is just the first step towards tackling what has become a complex issue.
In the short term, the KSE could respond negatively to this development when shares begin trading tomorrow. Higher oil prices could exacerbate the already slowdown effect on the economy.
For industrial producers, higher oil prices come just at a time when the global economy is slowing down.
Going forward, higher oil prices will likely deal with what has become a growing challenge for the economy. With the country's budgetary expenditure spinning out of control and the federal budget deficit significantly widening due to the oil price situation, there is little prospect for an upturn any time soon.
The last government, which claimed to be friendly towards the markets and the business community and frequently laid its claim to overseeing an economic recovery, also made the mistake of not raising oil prices in keeping with global trends. Consequently, the add-on effect has been significant.
For the markets though the future will be driven in some measure by the way the new government handles economic policies, especially in the midst of a slowdown. For the moment, the new administration will be hard pressed to cut down its expenditures, which in turn is a policy choice that is likely to create at least the danger of an economic slowdown.
Faced with the danger of a slowdown, it is all the more vital for the new administration to consider ways of perking the otherwise weak investment sentiment.
It would be vital for a new government to avoid measures that would be clearly viewed as revenge seeking. In a country where vindictiveness is often a hallmark of politics, avoiding settling of scores will promote the overall business environment.
- The writer is a journalist based in Pakistan.
Vital issue: Future of Musharraf
It would also be vital for the future of investment and market sentiment in Pakistan that there should be a resolution of the matters surrounding President Pervez Musharraf.
Just in the past year, the Pakistani president's one tangle after another with his political opponents has only brought in heaps of unwanted political uncertainty.
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