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FEDERATION OF EURO-ASIAN STOCK EXCHANGES ANNUAL REPORT APRIL 2011
KARACHI STOCK EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
Economic Overview of the Country
Pakistan’s precarious economic outlook was
dealt a further blow in August 2010 by the
worst flooding in the country’s history. The
disaster saw at least 20mn people displaced
(with at least 6mn in need of emergency
assistance), causing massive damage to
infrastructure and agricultural output. With the
economy already having shown signs of
deceleration before the crisis, we believe that
stagflation (i.e. rising consumer prices,
subdued growth) is a major concern as we
head into 2011, and have revised our
macroeconomic assumptions accordingly.
Meanwhile, the government’s slow response
to emergency relief has added to its
unpopularity. With security still a major
headache and the Prime Minister Syed Yusuf
Raza Gilani also facing a stand-off with the
country’s judiciary, Pakistan’s overall country
risk profile is weaker than ever. Rising inflation
and unemployment following the flood
disaster in August will add to the woes of a
poor security environment and popular
distrust in the government. Meanwhile, tense
relations with India remain a potential
flashpoint.
Pakistan’s business environment remains
weak and, therefore, ranks a lowly 114 out of
167 emerging markets in our business
environment ratings. Going forward, we
believe that Pakistan’s business environment
will remain highly challenging, with the shaky
security situation and a dire energy shortage
continuing to weigh on economic activity,
particularly much-needed investment. Given
the recent damage to infrastructure in the
recent flooding – and the massive clean-up
costs necessary to get the economy back on
its feet – we believe that the country’s
investment appeal will remain unattractive for
the foreseeable future. Hyper inflation and
high unemployment rate potentially brining
serious civil instability.
The economic report has showed stability in
today’s economic indicators compared to last
few years’. Some of those indicators
presented in the Economic Survey (2009-
2010) are as listed below.
• The economy grew by 4.1% during 2009-10
after a modest growth of 1.2% in 2008-09.
• The industrial output expanded by 4.9%,
with Large Scale Manufacturing posting a
4.4% rate of growth.
• The services sector grew by 4.6% as
compared to 1.6% in 2008-09.
• For 2009-10, the fiscal deficit is aimed to be
kept in check at 5.1% of GDP, despite the
absorption of larger-than-budgeted securityrelated
spending.
• The external current account deficit was
contained to 5.6% of GDP (US$9.3 billion) in
2008-09 from a high of 8.3% of GDP in 2007-
08 (US$13.9 billion). The current deficit is
expected to decline to under 3% of GDP in
the current year.
• Foreign exchange reserves have been
rebuilt to nearly US$15 billion, from their low
of under US$6 billion in October 2008.
• Inflation declined from 25% in October
2008 to a recent low of 8.9% in October
2009, though it has accelerated sharply of
recent and is showing persistence.
• The total installed electricity generation
capacity has increased to 20,190 MW during
July-March 2009-10 from 19,780 MW during
the same period of last year
• The number of villages electrified increased
to 147,038 by March 2010 from 133,463 by
March 2009, showing an increase of 10%.
• Overall exports recorded a positive growth
of 8% during the first ten months (July-April)
of the current year against a decline of 3% in
the same period last year.
• Trade deficit improved by 13.9% from
$14,218 million in July-April 2008-09 to
$12,238 million during July-April 2009-10.
• Social safety nets have been strengthened.
Benazir Income Support Program is being
streamlined. Pro-poor spending is
significantly rising over recent years
• 2009-10 started with a recovery in the
Capital Markets following the global financial
crisis.
• Net inflow of foreign investment in Pakistan
from July 2009 to March 2010 was US$431.9
million which was a large increase
considering the negative foreign portfolio
investment in the last financial year.
(Economic Survey 09-10)
Political Outlook
During the period 2010, the government of
President Mr. Asif Ali Zardari faces mounting
security, economic, religious and political
pressures. Zardari’s government remained
under stress on account of recent
intensification of US drowns attacks into
Pakistani territory continues under President
Barak Obama regime. The present USimposed
emphasis on military operations in
the Federally Administered Tribal Areas
(FATA) is proving costly in terms of Pakistani
military personnel and morale, not least with
regard to the important Inter-Services
Intelligence (ISI) agency. This intensification
of US activity is putting Zardari under severe
strain. It has started to bring allegations in the
Pakistan media that he is complicit with it,
which could prove fatal to his political
reputation. Zardari may struggle to survive
the year without losing his parliamentary
majority or falling victim to one of Pakistan’s
recurrent military coups.
Attempts to raise power tariffs and petroleum
prices had to be partially abandoned in the
face of widespread rioting. However, the
policy framework agreed between Pakistan’s
government and the IMF calls for a rise in
revenue mobilization from 9% to 15% of GDP.
This will be difficult to achieve without
imposing an agricultural tax on the landlord
classes, which dominate the political system
(including the National Assembly) and are
unlikely to comply without a fight. The
conditional IMF lending packages also meet
fierce political resistance contributing rising
political opposition.
Information obtained from the Exchange.
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
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