EDITORIAL: Pakistan Stock Exchange (PSX) suffered a heavy sell-off on Monday, wiping out significant market value amid deteriorating investor sentiment and heightened risk aversion. Empirical studies have shown that the PSX is controlled by a relatively small number of investors with the capacity to manage or manipulate the market as and when they deem it appropriate.
Research further reveals that though the market is small in size relative to regional markets, yet there is a high level of trading that could be due to two factors. First, macroeconomic policy changes, particularly consideration of a rise in taxes payable by the players, given that tax collections from this source are less than 10 to 15 billion rupees per annum against India’s collections of over 100 billion rupees. At present, there is growing pressure from the International Monetary Fund (IMF) under the ongoing programme to raise taxes on the less taxed or untaxed sectors to meet the budgeted revenue shortfall by the Federal Board of Revenue.
Critics further maintain that market manipulation may also be linked to the challenge facing an incumbent Finance Minister relating to his performance if the economy continues to flounder as at present. And second, the high level of trading is indicative of short-term traders who exploit a special carry forward trading arrangement.
Be that as it may, there is overwhelming global evidence that the stock market players constitute a very small percentage of the population and that the poor and vulnerable are understandably not players. This is as relevant to PSX as it is to the New York Stock Exchange though a bullish run is seen by members of the government as indicative of the efficacy of the economic policies of the administration. Or, in other words, an uptick in the stock market does not benefit the general public and in a country like Pakistan where the poverty levels are 42.4 percent, as per the World Bank data, the focus must remain on inclusive growth. In addition, the argument that a buoyant stock market will increase job opportunities and therefore the benefits would trickle down to the poor and vulnerable has been a theory that has yet to be proved as remotely accurate.
In Pakistan’s case, what is baffling is the fact that frequent reports of a bullish stock market indicative of investor confidence have not been accompanied by either a (i) rise in foreign portfolio investment (data released by the Finance Division shows that portfolio investment was negative USD 225.1 million July-December 2025 against negative USD 221.8 million in the comparative period of 2024, registering negative USD 650.2 million July 2024-June 2025), or (ii) a rise in domestic output, given claims by the manufacturing sector that more than 150 units have closed down, which is strengthened by the departure of several multinationals from the country in recent months. True that the Gross Domestic Product has risen compared to last year; however, the consensus is that the rise is not attributable to a rise in output but to a decline in inventories due to an uptick in consumption.
To conclude, there is therefore a need for the executive branch of government to delink the reforms policies and their effectivity from the stock market performance and instead focus on tax reforms based on the ability to pay principle rather than on indirect tax collections whose incidence on the poor is greater than on the rich and slashing their own current expenditure to generate the fiscal space that is necessary to increase leverage with the IMF that would reduce the pressure to implement harsh upfront conditions that the people of this country have been subjected to since the last three Fund programmes dating back to 2019.
Copyright Business Recorder, 2026