Pakistan share bounce belies dire straits

Published Jan 06, 2013 07:36am

In this photograph taken on January 2, 2013, a Pakistani stockbroker talks on his mobile phone while watching share prices on a monitor during a trading session at the Karachi Stock Exchange (KSE) in Karachi. Pakistan share prices grew nearly 50 per cent last year in a staggering development that belies major problems in an economy where depleting foreign exchange reserves and turmoil could spell trouble in 2013. - Photo by AFP
In this photograph taken on January 2, 2013, a Pakistani stockbroker talks on his mobile phone while watching share prices on a monitor during a trading session at the Karachi Stock Exchange (KSE) in Karachi. Pakistan share prices grew nearly 50 per cent last year in a staggering development that belies major problems in an economy where depleting foreign exchange reserves and turmoil could spell trouble in 2013. - Photo by AFP

KARACHI: Pakistan share prices jumped nearly 50 per cent last year in a staggering development that belies major problems in an economy where falling foreign exchange reserves and turmoil could spell trouble in 2013.

Its biggest share bazaar, the Karachi Stock Exchange's benchmark KSE-100 Index founded in 1948, reached a record 17,031 points during trading on December 31, 2012, raising hopes among dealers for better prospects in the new year.

Average daily volumes rose from 79 million shares in 2011 to 173 million shares in 2012, rising in value from $40 million to $50 million.

“Pakistan's total return has been one of the best performing markets in the world,” said Mohammad Sohail, who heads brokerage firm, Topline Securities.

By the end of 2012, trade on the KSE-100 was bettered by only Caracas, Istanbul and Cairo.

Sohail attributed the growth to a 4.5 percentage point decline in interest rates in the past 18 months, from 14 to 9.5 per cent, which he said had boosted earnings and encouraged funds to flow from government securities into equities.

But other experts warned that the boom was an oddity “engineered by local giants” given the worrying state of the economy in a country dogged by Taliban and Al-Qaeda-linked violence.

On January 1 and 2 stocks lost 2.46 per cent -- the worst fall in 14 months -- which analysts attributed to the start of potential turbulence linked to Pakistan's approaching general election.

Religious scholar Tahirul Qadri returned from exile in Canada to urge a march on Islamabad to demand electoral reforms, mimicking the protests in Egypt's Tahrir Square that brought down president Hosni Mubarak in early 2011.

“The rise in the KSE-100 is... not supported by any significant foreign inflows. It is a manoeuvred boom,” said independent economist A.B. Shahid.

Last year, he said the Pakistani rupee depreciated eight per cent against the dollar and it is still under pressure because of depleting forex reserves.

In November 2008 the IMF bailed out Pakistan with an $11.3 billion loan package to stave off a balance of payments crisis. But Pakistan abandoned the deal in 2011, refusing to carry out strict financial reforms.

It has since paid back more than $2 billion and owes $6.3 billion between February 2013 and September 2015, according to a spokesman at the central State Bank of Pakistan.

But analysts say the repayments strain the rupee and drain reserves, which neither remittances nor US payments for services against terrorism in the form of a Coalition Support Fund can replenish.

Reserves held by the central bank fell from $12.8 billion in January 2012 to $9 billion in January 2013. Pakistan last week received $688 million from Washington under the Coalition Support Fund.

Overseas citizens remitted $5.98 billion in the first five months (July - November) of the current fiscal year ending June 30 -- 14 per cent more than the same period of the previous last fiscal year, official figures show.

No date has been set for elections, although the government has insisted the ballot -- which would mark the first democratic transition of power in Pakistan -- will be held on time after parliament disbands in mid-March.

“A delay in elections could strengthen the prospects of exchange reserves falling steadily, more money being printed, the continued slide of (the) rupee and higher inflation,” said a finance ministry official.

Official figures put inflation at 8.3 per cent and the export target for the year is $25.6 billion, but persistent fuel and energy crises have crippled industry and commerce, forcing up unemployment and racking up costs.

The All Pakistan Textile Mills Association predicts that outages could cost the country $3 billion in textile exports this fiscal year.

“The government has projected a textile export target of $16 billion.

However, this target appears to be difficult to realise, said association chairman Ahsan Bashir.

More From This Section

Comments (4) (Closed)


awakening
Jan 07, 2013 05:00am
completely agree with the comment
Sam
Jan 07, 2013 12:48am
Everything in Pakistan is full of corruption including KSE and Stock exchange.
Reality Check!
Jan 06, 2013 05:41pm
If only they fix governance and energy, Pak economy can fly out of all other problems!
Anwar Amjad
Jan 09, 2013 04:25am
Until we put to use our 185 Billion Tonnes of coal reserves there will be no respite from energy crisis in the country. Once we do that there will be no energy crisis in Pakistan even when all oil wells in the world have dried up.