Announcement about deal on govt formation propels Pakistan stocks

Announcement about deal on govt formation propels Pakistan stocks


KSE-100 Index gains 1.81pc as investor await Islamabad’s future line of action to revive economy

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KARACHI (Web Desk/Dunya News) – The news that the PML-N and the PPP have reached an agreement on forming a government in the Centre gave much-needed boost to the share market, as the Pakistan Stock Exchange made a net gain of 1.81 per cent on Wednesday amid the hopes that the new elected arrangement will provide sustainable policies and revive the economy.

Within five minutes of the new session, the benchmark KSE-100 Index had touched 61,553.36 against the previous closing of 60,464.24, representing a gain of nearly 1,000 points.

By the time session was closed, the KSE-100 had climbed to 61,559.15 after an addition of 1,094.51 points, or 1.81pc, after the benchmark index saw a trading volume of over 208 million shares.

The latest gains show how the desperate the market is about seeing an end to political instability in Pakistan, as stocks have been sliding before the Feb 8 elections and after the polling day thanks to the fractured mandate it produced.

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It was against the hopes and predictions about a strong government led a party enjoying at a least a simple majority so that there could be political stability and consistency in economic policies.

Meanwhile, there is uncertainty about the future economic czar in the coalition government, as some circles are claiming that Ishaq Dar – a close aide of party supremo and three-time prime minister Nawaz Sharif – may not be part of the federal cabinet as finance minister.

Assigning the finance ministry to Dar will mean government efforts to strengthen rupee, slashing interest rates [which are determined by a fully-independent State Bank of Pakistan] and mega development projects, mainly focusing on job creation and infrastructure.

On Tuesday night, the PML-N and PPP top leaders announced that they had reached the numbers required to forming the federal government and that Shehbaz Sharif would assume the prime minister office, while Asif Ali Zardari was going to launched a bid to enter the President House again.

The deal also involves distribution of other top offices at national and provincial levels after the two sides spent days on forcing the other to accept their demands – a usual practice in formation of coalition governments across the world.

It is a Herculean task for the future government to grapple with the multidimensional challenges being faced by Pakistan, with issues like providing relief to the inflation-hit masses amid more energy tariff hikes, future of state-owned enterprises and selecting the right kind of development model for reviving the economy, which has been crippled by record-high interest rates.

Read more: Securing external financing to one of the most urgent issues for next Pakistan govt: Fitch

According to Fitch Ratings, the close outcome of Pakistan’s election and resulting near-term political uncertainty may complicate the country’s efforts to secure a financing agreement with the IMF, to succeed the Stand-By Arrangement (SBA) expiring in March 2024.

“A new deal is key to the country’s credit profile, and we assume one will be achieved within a few months, but an extended negotiation or failure to secure it would increase external liquidity stress and raise the probability of default,” one of the top global rating agency said in a report.

The latest warning comes after as the Moody’s Investors Services last week pointed to the threats related to the political instability following the Feb 8 elections and said uncertainty around Pakistan’s ability to quickly negotiate a new IMF programme after the current one expires in April 2024 remained very high.