Dancing around the fire is not the solution to any problem. One should try to see beneath the surface in order to grasp an idea about the basic issue.
Despite a stream of strong words and announcements made by the past rulers of Pakistan, nothing concrete has been done to introduce a proper economy revival plan. Rather the situation has taken a quantum leap for the worse. Ever since the spectre of Panama papers was let loose, the Pakistan Stock Exchange has been the subject of so much volatility and fluctuation as to induce a permanent state of vertigo for those riding on the undulating waves. First, it was political uncertainty that lapsed for almost more than a year. As the political soap opera came to its end, the monster of economic default began to raise its head behind the wall and instead of shooting it between the eyes the gatekeepers distracted by noise and hysteria gave the monster time to take shape and consolidate. Pakistan stock market on Monday tumbled as Karachi Stock Exchange 100 Index dropped by more than 1300 points. Market capitalization of RS 110 billion wiped out.
Pakistan Stock Exchange had recorded a free fall during the previous week where share values reached almost nine-month low mark with recorded a decline of 1,772 points because of rising interest rates.
The prime reason remains the country’s economic condition. Foreign exchange reserves are alarmingly low; barely sufficient to cover two months of imports. There is a balance of payment crisis. The current government is jostling with different options. They want to boost up the collective national morale by not going to IMF, however, that seems difficult to avoid. Our friend from the East, China, has helped us by inoculating some dollars into the system. Sheikhs from Saudi Arabia have also pledged to provide with largesse of $4.5 bn, but only to be used for oil payments. It is estimated we need $12 bn to avoid a bailout. However, the option to turn towards a lender is the last resort. This has helped to kindle the smoldering heap of uncertainty and investors are on a wait and see mode.
Another factor is Pakistan’s inclusion in FATF. It is a lingering one, like the one mentioned above. When Pakistan was included in the Grey list by Financial Action Task Force the sentiment took a negative turn. Such events tarnish the image of the country serving as a warning sign to foreign investors who take it as symptomatic of the future issues. Who wants to risk it, when the chance of loss surmounts to that of the profit.
Previously, Pakistan’s GDP had grown from 4.67 per cent in 2015 to 5.79 per cent in 2017. But then Panama-gate happened. And the stocks tumbled from 53, 000 points injuring many investors – especially the short-terms ones. Lastly, until or unless the government delineates the future economic policies, the issue of IMF and bailout resolver and our future vis a vis the FATF becomes clear, we might have to wait to see an improvement.