Pakistan’s main stock exchange fell by 525 points on Tuesday afternoon, adding to uncertainty after the Supreme Court ordered the arrest of Prime Minister Raja Pervez Ashraf in connection with alleged impropriety in contracts for rental power projects.
Yaqoob Habib, the media coordinator at the stock exchange, said that this could not be called a “crash” because the percent change in the market was only -3.16 percent. Though analysts are urging calm, many say a feeling of economic uncertainty is escalating with ramifications that will be felt in Pakistan for years to come.
“It is a very serious blow to investor confidence. There are two upcoming transfers of power in the country,” says economic journalist Khurram Husain, “which have historically been very contested – the transfer from the current government to the interim one, and from that to the next incoming government.”
Mr. Husain said the Karachi Stock Exchange was not an economically significant index and that the stock market was probably reacting to the country's uncertainty.
At the stock exchange, traders were glued to their cellphones, fielding calls from worried investors, and were intently watching news developments unfold on television.
“I was called back into the office,” says the harried-looking Abdus Samad, the head of operations at Salim Sozer Securities. “I’ve taken about 20 to 30 phone calls from clients in the past couple of hours since the news came. They all want to know what the arrest warrant means, what happens next and whether they should be buying or selling shares.”
He said he was allaying clients’ fears by telling them that they should wait till Wednesday, when the government’s strategy for how to deal with the political crisis became clear.
“This has happened before when similar verdicts have been delivered,” said Abdul Samad, a trader at Lakhani Securities. “If the market rises by 200 or 300 points on Wednesday it should be better.”
Observers of Pakistan’s economy have long warned that the country needs reform to meet its budget deficit.
In November 2012, the International Monetary Fund said that Pakistan continues to face difficult macroeconomic challenges, highlighting the structural problems in the country, inflation, the energy sector, and the central bank’s direct lending to the government. And the IMF in 2011 decided against extending its $11 billion program for Pakistan after the government failed to implement policies the IMF had asked for.
Widespread riots over power and gas shortages have been a sticking point throughout the current government’s tenure, and inflation was recorded at 7.9 percent in December 2012. The GDP was 3.7 percent in 2012, and is expected to decrease this year.
Traders at the Karachi Stock Exchange told the Monitor that they expected the government’s political strategy would put trading on track on Wednesday. They idled around the trading screens in and outside the stock exchange that showed the full extent of the damage to trade.
Husain said that the “immediate” issue was of the country’s foreign exchange reserves. “These are not at critical levels just yet but the International Monetary Fund has described them as being ‘below adequate.’ Now when the IMF says it is ‘below adequate,’ your reserves are in serious trouble.”
He said that investors were watching the situation very closely and would hold off any decision until the transfers of power were complete – which would affect the country’s growth rate and lead to the economy being “shackled” for a year or more. Husain said that while it was understood that the transfers of power would be contentious – large investor groups had factored in currency devaluation, for example, for months ahead – no one had expected how difficult it would be.