ANNUAL REPORT JUNE 2010
FEDERATION OF EURO-ASIAN STOCK EXCHANGES
KARACHI STOCK EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
Political Outlook
Although the army has reported a number of
victories in the course of its new offensive
against Tehrik-i-Taliban Pakistan (an alliance
of around 13 Pakistan-based militant Islamist
groups) in the Federally Administered Tribal
Areas (FATA), the medium-term success of
the current conflict remains far from assured.
There is little chance that the fight against
Islamist militancy will be won decisively in the
long term, even if broader political stability
returns, which is itself unlikely. An uneasy
political stability has held since the resolution
of a lengthy judicial crisis in March 2009, but
tensions between the two main political
parties will persist, hampering government
effectiveness. National security will remain the
most pressing issue on the domestic
agenda, but the government's focus is likely
to waver.
The US's policy towards Pakistan and
Afghanistan encompasses development
assistance–exemplified by a new, US$7.5bn
non-military aid bill (military aid and targeted
strikes on suspected militants, but the US is
still seeking co-operation and accountability
from Pakistan. The US was always going to
have difficulty in achieving its goal in the
region–nullifying Islamist militancy–even if it
were to have received unstinting and effective
long-term co-operation from the Pakistani
government and military, which was in any
case unlikely.
Pakistan’s macroeconomic environment is
more stable than it was in 2008 because of
the disbursement of emergency financing
from the IMF. The second review of Pakistan’s
stand-by arrangement with the IMF took
place in August 2009; the Fund accepted that
Pakistan’s economy had continued to
stabilise, but also warned that the
macroeconomic outlook for 2009/10
remained difficult and that the external
position was subject to considerable
downside risks. The government’s attempts
are believed to improve economic stability will
be impeded by the unfavourable international
economic environment and by a range of
domestic factors. The task of the government
and the SBP will be simplified to a degree, in
the sense that these institutions have lost a
considerable amount of autonomy in
economic policymaking as a result of
Pakistan’s acceptance of IMF assistance.
driven partly by a resumption of growth in
investment as financial constraints ease.
Year-on-year consumer price inflation slowed
to 10.1% in September 2009, from 10.7% in
August. Although inflation has been on a
declining trend since November 2008, it has
not fallen nearly as rapidly as in many other
Asian countries, and remains high.
Estimated that the Pakistan rupee will
average PRs82.9:US$1 in 2009, representing
a nominal depreciation of 15% from its
average level in 2008. In 2010-11 the rate of
depreciation will moderate to 0.7%. The
currency's weakening against the US dollar in
2009 was limited by the improvement in
Pakistan’s economic fundamentals that
resulted from the IMF financing package; the
boost to investor confidence from bilateral
pledges of aid and assistance; and
intervention by the SBP in foreign-exchange
markets to limit volatility.
Economic Performance
The weak performance of most countries will
be partially offset by continued GDP growth
in China and India, but even these
economies will suffer from some of the
adverse effects of the downturn. Moreover,
the downside risks to the global economy
remain high.
The global financial crisis has provoked a
liquidity crunch in Pakistan. This means that
investment, which was previously a crucial
driver of economic expansion, is set to grow
by just 1.7% in 2009/10, after contracting by
6.5% in 2008/09; this compares with average
annual investment growth of 15.7% in the
boom years of 2004/05-2006/07. The
government’s need to contain the fiscal
deficit means that public consumption growth
also will be significantly curtailed. Private
consumption will provide support to the
economy, growing by 3% in 2009/10. It s
forecasted that real GDP will grow by just
2.4% in 2009/10, below the government's
target of 3.3% and just shy of the SBV's
projection of 2.5%-3.5%. Economic
expansion will accelerate to 3.8% in 2010/11,
The IMF’s emergency financing package
forestalled a balance-of-payments crisis in
late 2008. The programme that Pakistan must
now follow includes traditional austerity
measures designed to reduce domestic
demand. Therefore estimated that imports will
contract sharply in 2009, allowing the trade
deficit to narrow to US$10.1bn this year, from
US$16.8bn in 2008. In 2010-11 import growth
will resume, in line with stronger economic
expansion and higher oil prices. Export
growth will be anaemic, as a broad range of
structural factors will impede Pakistan’s ability
to boost its exports. As a result, the trade
deficit will widen again in 2010-11, to an
annual average of US$13.6bn.*
* The Economist Intelligence Unit Limited, November 2009
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
REAL GDP
(PKR millions)
CONSUMER PRICES (% CHANGE PA; AV)
(%)
6 85
5 80
4 75
3 70
2 65
1 60
0
55
2005
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