Business | Opinion
Managing the economy in the midst of tensions at the border
Fast rising tensions in Pakistan's relations with India in the past couple of weeks following the Mumbai terrorist attacks, promise to have implications for the south Asian country's future including its economic outlook.
- By Farhan Bokhari, Special to Gulf News
- Published: 23:38 December 9, 2008
Fast rising tensions in Pakistan's relations with India in the past couple of weeks following the Mumbai terrorist attacks, promise to have implications for the south Asian country's future including its economic outlook.
For the moment, the immediate casualty is indeed the outlook for the Karachi stock exchange or KSE which opens on Friday after remaining closed during the rest of this week on account of holidays for Eid Al Adha.
Among the immediate questions over the future of the stock market, one is going to be the extent to which the floor of the KSE, which was slapped in August this year, will now be opened to move freely.
The floor is an artificial mechanism which is meant to keep share prices from dramatically falling. However, the floor has become something of a liability for the KSE as it has seen the volumes of daily traded shares go down significantly.
With buyers practically out of the stock market, the immediate challenge is to restore confidence in a way that investors return to Pakistan's equity market. For the moment, in addition to economic compulsions working against their return, the added challenge will be the presence of political challenges. For equity investors and the Pakistani government, the immediate task will became relatively easier if tensions with India go in to a reverse gear.
On Monday, the Pakistani government ordered the arrest of Zaki Ur Rehman Lakhvi, a militant suspect named by Indian officials for being linked to the Mumbai attacks. He was picked up among seven or eight militants who were all taken in to custody.
Side by side, Prime Minister Yousuf Raza Gilani chaired a meeting of the cabinet's committee on defence, participated by senior cabinet ministers and chiefs of Pakistan's armed forces. The meeting ended with a resolve to prevent anyone from using Pakistani soil for militancy related purposes.
Going forward, if indeed the political temperature between India and Pakistan begins to lower, the next stage will be dealing with economic parameters that stand out at the heart of challenges faced by the country. Stabilising the stock market may require the unpalatable choice of removing the artificial floor that has been kept up in defiance of many analysts calling for its removal.
The time has now come to remove the floor and let the KSE take its own course even if that means that KSE-100 index sinking to an all time low situation. Such a step would be vital to let the market rise in future when the right set of trends come together to support such a move.
In the meantime, other economic reforms are also long overdue and necessary. For example, Pakistan has a badly defunct system of collecting taxes which essentially means that less than one per cent of the country's population pays income tax. This is an unsustainable situation in a country where managing the fiscal deficit is among the most acute challenges for the economy.
Other vital areas include reviving a sustainable pattern of growth for an economy which has not always grown as expected. In the midst of an international monetary fund loan programme, Pakistan's industrial growth is likely to suffer in addition to a fall in growth in the service sector.
During this difficult time, it is absolutely vital for Pakistan to concentrate on the revival of its farming sector. This is essentially for a country where almost two thirds of the population relies directly or indirectly on the agricultural sector to sustain themselves.
The writer is a journalist based in Pakistan
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