There is bloodbath in the stock market; nothing is going right. The reserves are falling down, global markets are not conducive for emerging economies and on top of it, the government has threatened to crack down on looted money. All of it is bringing the sentiments further down.
Nothing is working out and uncertainty is killing the market. The problems are nothing new to Pakistan; but the way to handle it is different in Naya Pakistan. It all boils down to management of market and media sentiments where the focus is lacking in the new government.
Back in 2013, when the PMLN government assumed power, the reserves situation was no good - SBP liquid reserves were on a declining trend for two years (since Jun11) at the time of PMLN team came in (May13). The reserves were at $6 billion and the fall continued for seven straight months of PMLN government and were down to t $3 billion before things started improving.
Today, since the new government assumed power, the inherited falling reserves which started tapering off (since Oct16) almost two years prior to PTI assuming power. And the fate of early days of PTI is no different from that of PMLN.
However, the difference is in the management of media and dealing with market sentiments. The stock market never fell in that time and Dar took immediate decisions in an attempt to stabilize the markets. That said, the PMLN government took its sweet time to tighten its grip on the economy. However, they played the gallery smartly as the sentiments were better managed back then. They had some plan and implemented it. One may argue that the plans were short term and the recovery was hollow.
To date, the PTI government is also playing to the gallery; but probably not in a right way. They are passing the buck of crisis to the previous government. Yes, it is true and the point is well taken. But they now have the reigns and should come up with a plan to manage the sentiments right. You can’t forever keep blaming others.
It is not just reserves fall that have sent jitters to the stock market. There are other factors in play as well. Global conditions are not conducive as with a surge in oil prices, emerging economies are facing challenges and the impact is reflected into regional markets including Pakistan.
The upward movement in oil prices and increased rates by the FED are spreading pessimism and fears of recession. The currency and markets are behaving no different in India or China. In such times, it is hard to fetch loans or issue bonds.
Then in Pakistan, the government is charged to take action against the looted money and to crack down hard on tax evaders. It is a wonderful idea; but timing is not right. The government needs to manage sentiments. One of the reasons cited for the drop at the PSX is that the name of a big market player is doing rounds in one of the NAB cases.
Plus, there is no representation of market big guns in the newly formed council of business leader. There are around 60 UAN which are generating majority of the volume in the market; and these are not happy of being cornered.
Apart from that, the media houses are in tough spot with virtually no incremental government advertisement. In the time of PMLN, government was the biggest revenue contributor to media houses and that is absent now.
The private sector spend is low too as the confidence is eroding.
The government needs to manage markets and media. To start with, the FM should come up and give a plan of external financing as soon as possible. The reserves might have gone down further which will be visible in the release due on Thursday.
The Ministry of Finance or the SBP should come up with plans to build up reserves in coming few weeks. Asad should come and tell the market about going to the IMF which is more likely the case. It is high time to start sharing the plans with public to regain some confidence.