FEDERATION OF EURO-ASIAN STOCK EXCHANGES
ANNUAL REPORT APRIL 2009
KARACHI STOCK EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
Economic and Political Environment
The new government assumed power in late
March 2009, the main issue it was confronted
were of unprecedented levels of high
inflation, precarious balance of payments and
the security. The Indian government’s
allegations of Pakistani involvement in the
terrorist attack on Mumbai in late November
2008 presented the government with another
potential crisis. The fallout from the Mumbai
attack has led to a sharp escalation of
tensions with India, these security issues
once again come to dominate the
government’s agenda. On the country’s
political front the issues that divide the ruling
party, which leads the coalition government,
and the Pakistan Muslim League (Nawaz), or
PML (N), the second-largest party in
parliament, remain unresolved.
Pakistan’s relations with the US, which have
been deteriorating as a result of US policy of
conducting military raids in Pakistan without
the permission of the Pakistani government.
Pakistan’s economy has quickly moved from
a rapid rate of growth to a state of crisis. Real
GDP growth is slowing sharply, the rate of
inflation remains at record highs, the current-
account deficit continues to balloon, foreign-
exchange reserves were falling. The crisis has
pushed economic management team to IMF
for assistance. Finally IMF’s Executive Board
approved a $7.6 billion loan for Pakistan to
support its program to stabilize and rebuild
the economy while expanding its social safety
net to protect the poor. The 23-month Stand-
By Arrangement will enable the government
to implement a stabilization program that
envisages a significant tightening of fiscal
and monetary policies to bring down inflation
and reduce the external current account
deficit to more sustainable levels.
expansion in government consumption,
which will remain steady at 4% a year in
2009-2010.
Year-on-year consumer price inflation
reached another record high of 25.3% in
August, up from a rate of 24.3% in July. The
continued surge is still mostly being driven by
rapid food price inflation. The fuel price rises
announced in March, June and July have
triggered another round of inflation as rising
transport costs have further increased goods
prices. The backlog was so huge and up until
July International Oil prices which were
increasing at an unprecedented rate.
Pakistan rupee depreciated by 25%,
reflecting investors’ fears over poor political
prospects, rising prices and slowing growth.
Economic Performance
Pakistan’s exports to become slow in 2008
and came down to 19.5% from 24% in 2007.
In 2009-10, however, growth in the US will
also come down as the financial crisis begins
to have a greater effect on the real economy.
Slow US growth will be partly offset by
continued strong (albeit slowing) growth in
China and India, as well as in a host of
smaller economies, but world GDP growth (at
PPP rates) will be below than the expected in
2009-10. However, risks are firmly on the
downside; the most significant of them is a
worsening of the financial market crisis
beyond what is currently expected, which
would cause more serious disruptions to the
real economy. Global inflationary risks also
remain a cause for concern.
The current-account deficit reached at the
record level. In 2009 Pakistan will probably
receive external financing that will relieve
some of the pressure on the current-account
position. Under this scenario, the current-
account deficit is forecast to narrow in 2009.
Lower international oil prices next year will
also facilitate this improvement by reducing
the import bill. Although export growth will
also be weak, the import bill (in US dollar
terms) will contract slightly in 2009, reflecting
a high-base effect as well as slowing overall
economic growth.*
Pakistan is experiencing an inflationary surge,
which will have a negative impact on real
wages and consumer spending during the
forecast period. Growth will rebound slightly,
in 2009-2010 as inflationary pressures abate
and private consumption growth rises to
4.9%. GDP growth will be supported by the
* Provided by Karachi SE.
Key Information Contacts
Government of Pakistan www.pak.gov.pk
Ministry of Finance www.finance.gov.pk
Privatization Commission www.privatisation.gov.pk
State Bank of Pakistan www.sbp.org.pk
Security and Exchange Commission of Pakistan www.secp.gov.pk
2007/08-ORIGINS OF GROSS DOMESTIC PRODUCT (%) (a)
2007/08-COMPONENTS OF GROSS DOMESTIC PRODUCT (%) (a)
Services
Mining & manufacturing
Agriculture
Construction
Electricity, gas & water supply
21.5
20.5
Private consumption
Government consumption
Exports of goods & services
Imports of goods & services
80
79.7
60
53.2
40
2.7
1.7
20
8.8
12.1
0
-20
-40
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