Another meltdown as PSX sheds over 1,000 points after govt maintains fuel subsidies

Published May 16, 2022
A screenshot of market activity on the KSE-100. — PSX website
A screenshot of market activity on the KSE-100. — PSX website

Bears were in firm control of the Pakistan Stock Exchange (PSX) on Monday as the benchmark KSE-100 index shed 1061.98 points in the first hour of trading.

According to the PSX website, the KSE-100 Index opened at 43,486.46 points and immediately fell by 806.95 points. By 10:05am, the index had plummeted 1,111.07 points to 42,375.39, down 2.55 per cent.

The market eventually closed at 819.14 points, or 1.88pc, down.

The fall comes a day after Finance Minister Miftah Ismail announced that the government was not increasing petrol prices "for now", going back on an important pre-condition set by the International Monetary Fund (IMF) for the resumption of its loan programme.

Ismail said he would talk to the IMF and find a solution, adding that Prime Minister Shehbaz Sharif "is not in favour of putting this burden [increased oil prices] on people".

"I had recommended him to increase [petrol] prices but he said people can't bear it," the finance minister said.

He, however, emphasised that petrol prices could be "adjusted anytime in the future" keeping in view international prices.

Arif Habib, chairman of the Arif Habib Group, told Dawn.com today that the government had to take difficult decisions to bring short-term stability in the market. "The path for the IMF programme needs to be paved immediately by removing subsidies on petroleum products, otherwise it is difficult to restore investor confidence," he said.

"The stock market is giving good returns even in these circumstances. However, the recent downturn in investor confidence is due to delayed government decisions on economic issues," Habib added.

Meanwhile, First National Equities CEO Ali Malik stressed that financial institutions had to step up and support the stock market.

"The monetary policy on May 23 is important for the market," he said. "There are reports of up to 2 per cent interest rate in the market. If this happens, the PSX fall would persist."

Govt's indecision keeps economy on edge

The PSX and the rupee have both come under pressure over the past week as the new coalition government has failed to take decisive economic decisions, most prominent among which is a reversal of fuel subsidies.

Analysts and experts have linked the economic pressure to uncertainty over the continuation of the IMF loan programme coupled with a rising oil import bill and widening trade deficit.

Earlier today, the greenback climbed above Rs193 in the interbank market, reaching a new all-time high. This is the fifth consecutive day the dollar rose to a record high against the rupee.

On the other hand, the PSX lost 1,447.67 points last week in what was called a "blood bath". The downward trajectory continued throughout the week and ended on Friday when the benchmark index closed at 35.29 points, or 0.08 per cent, up.

Dawn's editorial on Wednesday noted that the most important factor behind the erosion of investor sentiment has been the failure of the new coalition government to come up with a credible plan to take politically tough decisions to fix the economy. For example, it has continuously decided against the reversal of the fiscally unsustainable fuel and energy subsidies, which is the ‘prior action’ that IMF wants it to take before it agrees to restart funding.

In recent meetings with the new finance minister, the IMF has linked the continuation of its loan programme with the reversal of fuel subsidies, which were introduced by the previous government. However, Prime Minister Shehbaz Sharif yesterday rejected yet another summary by the Oil and Gas Regulatory Authority and the finance ministry to increase fuel prices.

The PTI had announced a four-month freeze (until June 30) on petrol and electricity prices on February 28 as part of a series of measures to bring relief to the public.

At the time, and even after coming into power last month, the PML-N and other parties part of the new coalition government had severely criticised Imran Khan's government for "derailing" the IMF programme through unfunded fuel subsidies. But despite being at the helm for over a month, these parties have not reversed the subsidies; although the finance minister has repeatedly said these subsidies are not feasible and are costing the government Rs120 billion a month.

Earlier this month, Ismail said petrol should have been priced at Rs245 per litre according to the agreement the former government did with the IMF. However, the PML-N led government was still selling it at Rs145 per litre and would try its best to maintain that price, he added — a sign that the new government is finding it difficult to take a decision that might be unpopular with its voters.

In an editorial published on Friday, Dawn said that the PML-N was caught up in 'private consultations' — a reference to the senior leadership's trip to London to meet with Nawaz Sharif — as panic continues to grow over its inability to start working on fixing the economy.

The editorial called for the PML-N to firmly decide its future course of action, saying: "It’s time to lead or get out of the way." With the government deciding not to increase fuel prices again, economic sentiment is expected to continue spiraling downward.

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