Stability is what the markets need

Islamabad: The prospect of a new government in Pakistan following the February 18 general election has so far failed to cheer the Karachi Stock Exchange. Indeed, on Friday the markets fell approximately 50 points.

The Pakistan People's Party (PPP), which, as the single largest party in parliament, has the biggest role in the formation of the government, has yet to formally name a new prime minister.

The resultant uncertainty has started affecting the sentiment among investors for three reasons.

First, the economy, whose prospects began improving about five years following a series of promising reforms, is showing signs of sluggishness. And factors beyond Pakistan's borders, notably the high price of oil, are offering little comfort .

It is clear that the enthusiasm surrounding the economy is weakening across Pakistan, and this in turn is affecting the confidence in the markets.

Contraction

Second, Pakistan must reconcile itself with a contraction of economic opportunities across the board. While in the past few years Pakistanis in a certain class were encouraged to go out and spend so that they could become linked to a recovering economy, today the need is to save and consolidate.

It is, therefore, essential that if the new government is looking for stability across the board, including the markets, it must also then announce the do's and don'ts of the market-related policies.

More new cars, to quote one of the widest used examples under the previous regime of President Pervez Musharraf and prime minister Shaukat Aziz, could well be evidence of affluence.

However, this kind of spending increase has done little to tackle what is now fast emerging as a slowdown effect for the stock market. Such an effect is likely to continue. Rather than encouraging people to spend on affluence and then hope that such a policy will revive the economy, it is far more prudent to encourage stability through a sustained effort to reduced spending.

Finally, meeting the challenge by way of reconciling political realities with economic trends has become more pressing for Pakistan than ever before. The ongoing uncertainty on the stock market perhaps creates the need for moving promptly to deal with the pressures that have delayed the arrival of a new prime minister.

While economic policies are absolutely crucial for running of the economy and associated matters, it is also clear that the political landscape of Pakistan must become more transparent and perhaps even stable for the market to do well

- The writer is a journalist based in Islamabad.