FOR the past one year at least, a series of economic crises have been roiling the global economy to which we in Pakistan have been little more than spectators. But this week, the sharp volatilities of the international economy briefly landed on our shores and triggered powerful adverse movements in the financial markets.

The stock market saw falls that rekindled memories of 2008, and the exchange rate has also been coming under increasing pressure.

For now, the stock market seems to be on a rebound, but the volatilities could return very quickly since the crisis in the international markets is far from over.

Also read: KSE bloodbath after global equity meltdown

The exchange rate on the other hand is continuing to feel the stress. The sharp swings on the stock market coupled with pressure on the rupee is a reminder that Pakistan remains vulnerable to instability in the global economy, and it is best to be prepared.

As a first step, the government should allow the rupee to find its own value. Investing too much importance in a strong currency is far too old-fashioned a way to view the exchange rate.

Especially since commodity prices, including oil, are on a sharp downward trajectory that is likely to continue for a while, it would be better to allow a soft landing for the rupee towards a value that does not require too much expenditure of reserves to sustain.

For the stock market, the government should put out early word on whether or not it would be willing to utilise public funds for a bail-out, should matters come to that.

The last such bail-out following 2008 had to be hastily arranged and was of doubtful merit. It would be better this time, if recourse to public funds should become necessary to prevent systemic risk, for strong guidelines to be in place for transparency as well as to ensure that the funds are not appropriated by the big brokers.

Now is also a good time for the SECP to wake up and monitor the advice being given by the brokers to their clients.

Misleading ‘research’ and attempts to sell unwarranted optimism, as well as talking up certain stocks, should be strictly prohibited.

The sharp volatilities roiling the global markets are escalating and it would be a grave mistake to seek solace in the notion that Pakistan will remain insulated from these developments. That same complacency magnified the impact of the 2008 crisis.

Nobody knows where the volatility will end, and nobody expects that the government can do much to keep it from impacting the country. But a few preparatory steps can go a long way to ensure that the government works to safeguard the public interest should matters deteriorate, rather than have its actions dictated to it in the thick of the crisis by a small cabal of brokers.

Published in Dawn, August 26th, 2015

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