When Asad Umar resigned as CEO of Engro Corporation in April 2012 to take a plunge into politics, most corporate barons were either amazed or amused at his decision to quit an exceedingly well-paying job.

His employers acknowledged his contribution in these words: “In his eight years as president and CEO of Engro Corporation, Umar has dramatically transformed a chemical company into a major Pakistani conglomerate.” Yet Umar’s ability to manage the economy as finance minister will have to stand the test of time.

However, major players at the Pakistan Stock Exchange (PSX) consider his appointment a good omen for the market. “Unlike other finance ministers, Asad has watched the workings of the country’s capital market more closely as he was one of the four non-member directors appointed by the Securities and Exchange Commission of Pakistan (SECP) on the board of the then Karachi Stock Exchange in 2006,” recalled a broker.

Arif Habib, former chairman of the bourse, affirmed that the first job of the incumbent finance minister is to attend to the ailing economy. Sinking foreign exchange reserves must be replenished, he said, adding that the government will have to tap all sources of funds.

Arif Habib says it is not the right time for the stock market to ask for incentives as the country is already short of funds

The Pakistan Tehreek-i-Insaf (PTI) election manifesto talked about “ensuring a greater stake for overseas Pakistanis” and creating a virtual investment desk in key embassies, which would serve as the conduit for opportunities with local business councils, chambers of commerce and key government institutions. This is meant to increase direct and portfolio investment by overseas Pakistanis, he said.

Mr Habib said bonds could be launched for non-resident Pakistanis. Overseas Pakistanis should be encouraged to invest without fear of a loss of capital, he added. Although different figures have appeared from time to time regarding the investable surplus in the hands of Pakistanis in foreign lands, Mr Habib shared his calculations. “Every year, inflows from overseas come up to $20 billion through banking sources while another $7bn enters through non-banking channels,” he said.

He believes that it accounts for nearly half of the total earnings of expatriates while savings from the other half should also be tapped. “Everything at the moment depends on the restoration of economic health, for that will lead to investment from both local and offshore investors,” he said. Mr Habib acknowledged that it was not the time for the market to ask for incentives as the country was already short of funds. But going forward, investors look forward to receiving government’s assistance, he added.

In his maiden address to the nation after taking the oath of office, Prime Minister Imran Khan affirmed that overseas Pakistanis would get investment opportunities. But his first and foremost task will be to reform the Federal Board of Revenue (FBR) and increase the tax net through a robust tax policy, efficient administration structure and effective enforcement mechanism.

‘Unlike other FMs, Mr Umar has watched the workings of the country’s capital market more closely as he was one of the four non-member directors appointed by the SECP on the board of the then KSE in 2006,’ recalled a broker

The prime minister also said that a task force headed by adviser to the premier Dr Ishrat Husain would be set up to work on institutional reforms. In his speech, Mr Khan also alluded to the de-politicisation of the Securities and Exchange Commission of Pakistan (SECP) “as the people there are hand in gloves with corrupt elements”.

A person close to the regulator who asked not to be named said it was imperative for the new government to strengthen the stock exchange and reform the SECP to improve the capital market’s performance. Two of the five slots for SECP commissioners were vacant at the moment. He suggested that those be filled with experts from the private sector purely on merit.

One of the commissioners should be a securities market expert having work experience in the market or market-related institutions. The most competent and experienced of the five should be appointed chairman. He stressed that it was also the criteria as per the Supreme Court’s judgment in the Ashraf Tiwana case. This professional said the SECP should be allowed to function independently for at least three years without interference from the government or the Ministry of Finance.

“The SECP will not be perceived as independent till the time its policy board is headed by finance secretary,” he said, adding that this view was also communicated to the SECP by the International Organisation of Securities Commissions (IOSCO).

Several market strategists stressed upon the inclusion of the private sector in the economy. “The expenditure allocation for public-sector development program (PSDP) should be shared with the private sector instead of the government spending the entire amount, sometimes on low-priority projects,” said one. The PTI manifesto and subsequent statements by the prime minister and finance minister do not waver on the commitment to building five million houses and creating 10m jobs.

Market participants thought that such a huge construction agenda together with the promised Bhasha Dam would stir up activity in the construction industry-related chain, including cement, steel, electrical goods and appliances sectors.

Mr Khan also repeated his promise of improving Pakistan’s ranking on the ease of doing business index, which must go well with the Pakistan Business Council and Overseas Investors Chamber of Commerce and Industry, which have been clamouring for it a long time. Earlier, the election manifesto of the party had also pledged to “put Pakistan in the top 100 economies of the world according to the World Bank’s doing business rankings in five years,” from the current 143rd position.

Zulqarian Khan, director of brokerage firm Next Capital, opined that the new government should initiate greater interaction between the Ministry of Finance and capital markets. The government must also divest part of its equity in huge firms, such as Oil and Gas Development Company, and privatise utility distribution companies, he said. Besides, big private firms, which exceed a certain level of turnover or profitability, should be encouraged through tax incentives to seek listings on the PSX. He suggested that overregulation in the stock market should be trimmed down.

Many market participants, including fund managers, complained of delays in the launch of new products like derivatives and options. Most criticised the performance of PSX CEO Richard Morin, appointed by the Chinese strategic investors, who has failed to introduce any new product despite the passage of eight months.

Published in Dawn, The Business and Finance Weekly, August 27th, 2018

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