 |
| The Economy of Pakistan and a Huge Decline at PSX |
The Economy of Pakistan and a Huge Decline at PSX
Yesterday, the
Pakistan Stock Exchange (PSX) showed a nightmare to the Pakistani economy.
Economic turmoil is nothing new to us, but the whole of Pakistan, frightened by
this nightmare, woke up screaming for a few moments to the dream and tried to
understand the illusion. This situation was also very closely watched at the
international level.
The market has
been declining for several months and is performing in a downtrend. Although
the market is also giving positive closings in the form of zig-zag, its overall
behavior is in the bearish trend. However, despite market fluctuations, such a
free fall in a single day is almost unprecedented and unheard of. The KSC-100
Index has been under intense pressure since the beginning of the trading day
and lost 2134.99 points (4.71% of the previous day's index) at the close of
trading. It was the biggest drop ever in a single business day since March 2020.
Reasons and Causes of the Recent Decline
Considering the
general public's reaction to the reasons and causes of this horrific upheaval
of the Pakistan Stock Exchange, some speculate that the Pakistan Stock Exchange
has welcomed the new variant of the Corona Omicron with its slippery move, some
has termed it as a result of Governor Punjab, Chaudhry Sarwar's statement in
which he said that the IMF had written off everything of Pakistan in return for
the loan, and some attributed the current accounts deficit to it.
In terms of
economic indicators, one estimate is that our imports are relatively high in
November 2021 as compared to the exports and their value is becoming more than
five billion dollars compared to exports. The payment of this import bill is
looking very difficult in the current unfavorable economic conditions as it is
obvious that the current account deficit will increase further due to this payment.
Also, the payment of import bills will reduce the foreign exchange reserves
which are already below satisfactory levels.
In terms of
economic indicators too, the Consumer Price Index (CPI) was expected to rise by
the 10% mark in November 2021 as compared to that of 9.2% in October 2021,
which is already quite high. But, going far beyond this mark, it reached 11.5%.
Therefore, the market also took its effect in the decline.
In addition,
there is an echo of economic pressure to bring in mini-budgets to meet IMF
requirements. There has also been an unexpected rise in interest rates recently
which has had a negative impact on the stock market. The next monetary policy
review is expected to raise interest rates further. If that happens, the stock
market is likely to fall further.
Other notable
factors in this negative economic move and free fall of the stock market
include inflation, devaluation of the Pakistani currency, the burden of foreign
debt under very strict and almost intolerable conditions, and economic and
financial decisions taken without proper planning, etc., are significantly mentionable.
The current
political situation in the country is also one of the reasons for this decline
as political instability has a direct impact on the country's economy. The constant
complaints of the business community regarding some financial policies and laws
can also be seen in this context.
These are all
factors that are undermining investor confidence as a whole. As a result, local
and foreign investors are becoming more cautious. Foreign investors are
reluctant to bring their capital to Pakistan and local investors are reluctant even
to disclose their capital and assets.
Immediate Economic Measures on an Emergency Basis
In the above situation, it remains to be seen how the present government will deal with this chaotic economic situation, and of course, our hopes should be optimistic because the world is sustained on the hopes. However, in my opinion, some economic measures are urgently needed on an emergency basis.
- It is intensely needed to be more careful with borrowing from foreign countries and loans of the International Monetary Fund (IMF). The existing debts should be repaid as soon as possible so that the interest on these loans can be saved and repaid as the actual debt to reduce the payable debts and interests. In this context, the recent example is Turkey, which got rid of more than 430 billion dollars by returning the foreign and IMF loans in recent decades just a few years back. Our debt is almost three times less than that of Turkey, while our resources and manpower are almost three times more than Turkey's. Therefore, we must make effective economic decisions with the best planning in which the national interest comes first.
- Imports, especially luxury items and domestically available items, should be kept to a minimum import level so that the foreign exchange reserves can be increased while avoiding foreign payments and the current account deficit can be controlled.
- It is important to address the concerns of law enforcement and taxation, as well as to restore the confidence of investors. Therefore, instead of filling the tax gap with ordinary people and small investors, steps should be taken to bring large taxpayers, defaulters, tax evaders through illegal trade, and those who do not pay tax on smuggling under the scope of legal trade and tax payment.
- On the most important appointments, the services of national economists should be sought instead of the representatives of the IMF and other imperialist powers of the world. Putting aside political differences in the national interest, an unconventional approach can be adopted in which the services of some experts from the opposition parties can also be availed.
- To end the dollar’s monopoly, immediate steps should be taken for other backup currencies, commodities, and assets, such as the establishment of a common currency for Islamic countries, or trading in local currencies instead of dollars with friendly and like-minded countries (such as the use of Pakistani rupee and Chinese yuan in trade with China), or to increase the ratio and proportion of gold or petrol or other commodities and assets on the back of the rupee to safely establish its real worth and value.
- An important and noteworthy aspect is also related to our common investors, that is investors' panic in such situations, which also greatly affects the market downturn. It is a different matter if one wants to leave the market for a strong reason, but due to temporary reasons to come out in panic, the speculative mafia gets a chance to play openly. It is equally important to have a clear policy in this regard to manage this impact.
_____________________
#Economy #PakistanStockExchange #PSX #KSE-100Index #Pakistan #IMF #loans #debts #rupee #decline #negative #freefall #bearish #trend #TahirMahmood #pak-tm #pak-tm.blogspot.com #https://pak-tm.blogspot.com
