Pakistan and IMF close to reaching loan agreement

Islamabad: Pakistan's negotiations with the international monetary fund or IMF are more than likely to begin bearing tangible fruit this week as the two sides are expected to come close to agreement on a new loan programme.

Pakistani officials believe, they are likely to see a two year programme of at least $10 billion (Dh36.73 billion) come together which would bind the IMF to give enough money to the south Asian country to save its economy from its first ever collapse on foreign debt payments.

But even this rescue is far from likely to salvage the Karachi Stock Exchange (KSE) and turn around recent trends that have dramatically pulled down the KSE-100 index to unprecedented lows.

Indeed, the only support for the KSE that has kept the index intact at levels of late August this year is an artificial lock that prevents the stock market from falling below its point at that time.

Once the management of the KSE lifts the locking mechanism, it is possible that the KSE-100 may fall anywhere between 15 to 20 per cent or more, going by the logic of the situation which is making the rounds.

In the meantime, equity investors have practically abandoned making new commitments, with the consequence that the number of shares traded on a daily basis has hit an all time low.

In brief, the KSE has practically become a dead market with no chance of a bold recovery any time soon.

Artificial lock

Going forward, it would be prudent for the management of the KSE as well as the government to let the KSE sink for a while after the artificial lock on levels of the stock market are removed. This is essential mainly because stock markets across the world must be allowed to go up and down on their own.

For too long, equity investors and the KSE have been protected by the Pakistani government. Provisions such as tax holidays on amounts that are applied elsewhere in the business have only made the KSE's lot expect one concession after another from the government.

While key stakeholders in the stock market including brokers are keen to receive the government's support for propping up their financial interests, they have yet to provide a reconciliation of their phenomenal earnings from the previous five years.

Artificial propping on incentives such as tax concessions for the stock market only reinforces expectations of similar relaxations for other sectors of the economy.

Ultimately, the danger is that stakeholders in different sectors of the economy will expect to be treated in a similar way by gaining generous concessions.

As the IMF programme comes together to rescue Pakistan from what may seem like imminent economic collapse, the long term prospects for the country remain firmly within the hands of Pakistan's ruling establishment and its mass population.

Farhan Bokhari is a senior Pakistan journalist who writes for leading international news publications.