KARACHI: Pakistan Stock Exchange (PSX) Managing Director Farrukh Khan criticised the government on Tuesday for extending disproportionately high incentives to the real estate and construction sectors while disincentivising investments in the capital markets.

Speaking at a press conference, Mr Khan said incentives extended to the real estate and construction sectors run into hundreds of billions of rupees whereas stock investors demand only a level playing field at little to no cost to the public exchequer.

“There’s little KYC [know-your-customer] for the National Savings and real estate sector. But investors in the stock market have to answer for the wealth of their seven generations,” said Mr Khan.

The PSX chief said the Financial Action Task Force–related regulatory burden is also “disproportionately heavier” on the capital markets as opposed to the real estate sector.

“The PSX is the honest taxpayer whose tax burden gets heavier every year because no one is taxing the undocumented segments of the economy,” he said.

He urged the government to list all state-owned enterprises on the PSX to bring accountability and transparency to the public sector.

Mr Khan said the chief reason for the consistent decline in both value and volume of trading is the steep rise in the international oil price, which invariably results in a wider trade deficit, weaker rupee, higher inflation and an increased cost of funds for businesses.

He demanded that the government should at least devise standard operating procedures (SOPs) aimed at evaluating the best avenue for fund-raising for mega projects or circular debt settlement.

He argued that raising debt through the PSX will help the government fetch funds at a lower rate than the one offered by commercial banks.

In her presentation, PSX Head of Business Development Raeda Latif spoke about the first and second tranches of the Pakistan Energy Sukuk (PES) through which the government raised a total of Rs400 billion.

Eight banks structured PES-I of Rs200bn at six-month Kibor plus 0.8pc per year and subsequently listed it on the exchange. However, the government issued PES-II through the PSX, which conducted book building to ensure a competitive rate. The exercise resulted in the government fetching a price of six-month Kibor minus 10 basis points for the Rs200bn PES-II.

In other words, the involvement of the PSX effectively saved the government approximately Rs18bn over the 10-year tenor, she said.

“The PSX book-building system led to a competitive price discovery for PES-II and attracted a large number of investors, which wouldn’t have been possible if this was a non-competitive process,” she said.

Published in Dawn, March 16th, 2022