Daily Times

Congratulations to all my fellow countrymen on the phenomenal and record breaking rise of the Pakistan Stock Exchange (the Exchange); the Index has passed the dizzying heights of over 46000 with no end in sight; may it cross 100000. All those associated with the Exchange cannot but help strutting around like banty roosters, peacocks if you may, all the time extolling this amazing performance and the related benefits of a booming stock market to the common man, which they also claim is the barometer of the nation’s economy. Ultimately in a rising market everybody makes money, as long as it keeps rising, giving all concerned an opportunity to brag about their brilliance in investing, and perhaps this time it is different and the index will keep rising forever.

While I am repeatedly told that with the title of the Best Stock Exchange in Asia under its belt, the Exchange will attract foreign indirect investment from all over the world, I fail to see how that will benefit the real economy of the country. The playground of the rich may have an attraction for those who gamble for quick profits, remember playing the market is a zero sum game eventually, but how does that money get directed towards hard core manufacturing is at best a very well articulated fiction. Destroying the fiction, however, is a target for another day; today’s focus is to figure out the causes behind the booming exchange with the honourable objective of using that knowledge to keep the Exchange growing ad infinitum.

There are certain non economic factors that boost country wide positivity and an all across feel good attitude, thereby acting as steroids for the Exchange such as winning at cricket; unfortunately we are getting a thrashing in Australia so we can strike that out. There is also a view that it had to do with the Supreme Court going on winter vacations, pointing out the linkage with a falling Exchange during the march on Islamabad. On a lighter side maybe a very long vacation then might be the key to an ever rising Exchange! Nonetheless the Exchange can hardly be expected to be fickle enough in the long term, to move when the opposition leader quips in the august house hearsay about the incoming chief of the courts, or when a minister tweets that “P paper issue will fade out. ”These might explain short term spikes in the Index but a long term rise, logically, can only be linked to economic growth and stability.

Since we are enamoured by foreigners analysing our economy, lets go to that route. The Economist Intelligence Unit (EIU) on 30 November 2016 had something to say on Pakistan’s economy which they, rather horribly, titled “Short-term positives mask structural economic deficiencies.” If you read this you cannot help but think that our enemies in the East financed it somehow or the other. Contrary to the what the IMF had us believe, EIU is of the view that everything good that happened was because of falling oil prices and even CPEC might not be able to bring in faster economic growth and consequently “inadequate employment opportunities for the country’s rising young population may weigh on social and political stability.” Their prediction about the future is even more depressing, “Finally, foreign direct investment inflows under the CPEC have been low and will be offset by substantial imports of capital goods. Moreover, Chinese loans for the CPEC will add to Pakistan’s external-debt burden.” Finally they have the gall to rank Pakistan in last place (17th) in their business environment rankings for Asia for 2017-2021. Apparently no one at the Exchange read about this, or if they did, ignored it completely so as not to rock the boat.

This EIU’s view was the catalyst in recalling an open letter to the IMF dated 24th October 2016 by three well know economists of Pakistan; the letter was rather cynical of IMF claiming success on completion of its 3 years EFF program, and perhaps short of brandishing it a liar, said everything else. It was reasonable to have expected IMF to respond to such scathing criticism and give a counter analysis repudiating the view in the letter; silence on the other hand could be termed as tacit acquiescence.

The letter highlighted issues which still remain valid concerns and in the best interest of the country need to be repeated again and again in the hope that they move to the front of the ongoing political debate. The authors went to the extent of terming the program as “self-serving” since the main pillar of the programme was to build foreign exchange reserves to repay IMF loans. And the letter contained proof that the build up off the foreign exchange reserves was entirely through adding additional external debt. One can’t but help agree with the authors, if their finding is correct, that the problem was simply postponed.

The authors within the letter challenged the GDP growth rates claimed by the government and asserted that the persistence of lower growth rate has failed to create enough jobs. They find that the unemployment rate has surged to a 13 year high; although I have never been able to understand how these rates can be calculated accurately in a country that is not known for spending a lot on gathering any kind of statistics and data. The authors also contest that the fiscal deficit has also been misreported and went on to add, “The IMF staff has been blissfully unaware of or has condoned this creative accounting.”I am surprised that IMF chose not to respond to such a serious allegation; after all these are leading economists of Pakistan who at one time or the other have been associated with IMF, or dealt with it. Perhaps something that should have been pursued by our generally hyper active electronic media.

To conclude, the letter to IMF pointed out about the same issues with the economy that the EUI is concerned about; a big decline in exports and a rise in external and public debt. In fact it was pointed out that the record level of external borrowing during the last three years created artificial stability in the value of the rupee thereby reducing export competitiveness. And now why could not the IMF diagnose that we are afflicted by the Dutch disease.

Reading through the letter again, two things come to mind. Firstly what exactly is a correct version of the country’s economy? Are we poised to take off or sink lower; these economists should try to engage the IMF directly and determine which analysis is after all accurate. And secondly, if exports are falling, workers remittance are growing at a slower pace, external and public debt is growing and unemployment is rising, then why is the Exchange breaking all records?

Can an index where the rich come to get richer know more about the economy than economists? Or, are there some other factors that govern the rise and fall of the Exchange which the common man cannot fathom? Or, at the end of the day it might turn out that the Enigmatic Exchange is just a casino, and Keynes was right!

Throw the dice!

The writer is a chartered accountant based in Islamabad and can be reached at syed.bakhtiyarkazmi@gmail.com