A meeting of the Economic Coordination Committee of the Cabinet (ECC) on Thursday approved issuance of sovereign guarantee of Rs 20 billion for investment in National Investment Trust (NIT) - State Enterprise Fund - with the objective to stabilize stock market. The ECC meeting presided over by Advisor to Prime Minister on Finance Dr Abdul Hafeez Shaikh approved the proposal of Finance Division with regard to authorizing government to issue a sovereign guarantee of Rs 20 billion fund.
Sources said that National Bank of Pakistan (NBP) would lead the NIT Fund with participation of four to five commercial banks to lend money to the NIT. The NIT would then invest the fund in purchasing shares whose dividend would be shared with the government in case of profit. Te share price is at lowest level, they added.
An official said that Advisor to Prime Minister on Finance during a visit to Karachi on stock market issues agreed to a proposal to provide liquidity to support the Pakistan Stock Market after it came under immense pressure. Secretary, Ministry of National Food Security and Research updated the Committee about the wheat situation in the country.
He informed the committee that the country was in a comfortable position with 7.257 million tons of wheat available in the stock. Ministry of Maritime Affairs suggested various proposals on the revival and development of shipping industry in the country.
The ECC meeting also noted the proposals and suggested to Ministry of Petroleum and Maritime Affairs to jointly come up with a comprehensive proposal in the next ECC meeting for introducing a dynamic shipping policy focusing on expansion and development of local shipping industry.
The ECC acceded to the proposal of Ministry of States & Frontier Regions to grant Rs 781, 591,000 for arranging 20,000 metric tons of wheat for temporarily displaced persons of erstwhile federally administered tribal areas (FATA). The ECC also approved Supplementary and Technical Supplementary Grants for various Ministries/Divisions.
Sources said that supplementary grant for export enhancement scheme of Finance Division, Housing and Works demands of additional funds, demand of supplementary grant of Rs 1742.289 million of Cabinet Division, Rs 6.551 million law and justice and other ministries and division were on the agenda of the ECC meeting for consideration and approval.
Reuters adds: Pakistan''''s stock market has been one of the world''''s worst performing over the past two years, with its benchmark 100-Share Index losing almost a third of its value since hitting an all-time high of 53,127 points in May 2017.
The market has been hammered because of political instability and a weakening economy that has seen growth slump amid a blow-out of the fiscal and current account deficits, leading to a provisional agreement with the International Monetary Fund for a $6 billion bailout last month. The finance ministry said the Economic Coordination Committee (ECC) of the Cabinet, a top decision-making body headed by de facto finance minister Abdul Hafeez Shaikh, gave the green light for the fund.
"In order to stabilise the stock market of the country, the ECC approved the proposal ... to issue sovereign guarantee amounting to 20 billion rupees for investment in National Investment Trust (NIT)-State Enterprise Fund," the ministry said in a statement. The ministry did not explain how the fund would work but Pakistan set up a similar stocks-supporting vehicle after the 2008 financial crisis when the valuation of local equities nose-dived.
Analysts say the fund is expected to invest in government-owned entities and would be activated if those stocks were to decline in value. Pakistan is expected to confirm the IMF loan agreement in coming months, which has in the past also been a trigger for stock market rallies.
However, the economy faces strong headwinds with Prime Minister Imran Khan this week saying Pakistan faced an "unprecedented economic crisis". nL8N23544V Khan''''s government forecast growth of 4% for next financial year ahead of an austerity budget that is meant to reassure the IMF that Pakistan is serious about tackling some of the structural issues that have led to boom-and-bust cycles. Saad Hashemy, chief economist at Topline Securities, said the fund would likely help improve market sentiment. "It indicates a bottom for some key stocks that are expected to be part of the fund," he said.