While the rest of the world is poised on a cliff, the Pakistan economy has already fallen off

Rumors stalk the crumbling land, each one trying to lay claim to a bigger piece of the explanation as to what’s happening in the country.

From the rumors it looks like the country has had it. Shaukat Tareen and the State bank governor has flown off to foreign lands to beg for money, a govt. spokesman is on TV claiming that Pakistan is not bankrupt – meaning it is, striking fear left right and center. Some of the -rumors- stories floating around:

* The country is bankrupt. This is not a rumor, as the govt. has confirmed it.

* The rupee is over valued, and despite crashing, the govt. says it’s still overvalued.

* A number of large corporate groups are near bankruptcy

* A few of the large stockbrokers are bankrupt

* Exports are falling, and thus unemployment is increasing

* Foreign capital is flying out of Pakistan

* You can’t remit money officially from Pakistan

* Mutual funds aren’t letting investors take out money

What’s going to happen? Will the usual bailout show up in time? Of course it will, but in the meantime the country is just about economically dead.

Pakistani banks have always preferred safe investments, putting money in govt. bonds and other no-brainer investments. In today’s climate, credit has completely dried up – putting some companies reliant on loans at risk of failure.

Overall, the picture is very grim. Some other, unsubstantiated rumors:

* Foreign currency accounts might be frozen – to all practical extents, they already are.

* The stock market floor will be removed soon – which will lead to a collapse, leading the the bankruptcy of a number of famous stock brokers. Unlikely to happen…

* To prevent the above, the govt. might do a fatcat bailout, along the lines of the rest of the world. After all, even though we might not have much, we do have a printing press, and we love our fatcats!

A day after the rumours, nothing has happened so far – but the overall climate is really bad, and worsening. The only hope is a few billion dollars from the west, and 1 or 2 from China.

“Paul Kedrosky on the Karachi stock exchange”:http://paul.kedrosky.com/archives/2008/10/11/pakistan_the_la.html:

bq.. It looks more than a little reminiscent of a dying patient hooked up to an EKG. After a few palpitations, the Karachi market has now flat-lined. It has fallen to the 9100 floor — okay 9182 — and now sits there, in the uncomfortable the way non-viable markets do. Volumes have collapsed, going from a healthy 186-million shares a day to a comatose million shares a day, a 99.4% decline. It is simply no longer a viable exchange, with companies unable to raise money and investors unable to get liquidity or — heaven forfend — buy shares. Nothing. Traders are reduced to sleeping and playing video games.

Well, that’s better than falling further, right? The KSE had dropped 40% before the floor was put in, so you might (were you a true nutter optimist) argue that this is better.

And you’d be wrong. The Karachi Stock Exchange and the Karachi SEC are meeting this weekend to decide whether or not to simply close the exchange for good. At the same time, the “badla” rate, a sort of interest rate at which investors can borrow money, soared to 100% on Friday, making the record-high Libor look positively like a giveaway. It is, in short, really, really bad.

p. The stock market is gone, baby gone – but inspired by the world wide bailouts and intense pressure from the fatcats going bankrupt, the govt. is probably going to do a hundred billion rupee bailout of the Pakistani stock market, along with the many mutual funds and banks. In a country so poor it can’t even feed it’s people, this bailout is really going to hurt. The government has already spent 20 billion rupees buying stock – but that’s just a drop in the ocean – or a couple of buckets at best – the total has to be close to a 100 billion to have a large enough effect.

bq. But the news gets even worse. The country’s debt has been downgraded by S&P deep into junk status; it has just enough foreign reserves to pay for two months of imports; and Pakistan looks increasingly like it will default on a major loan on Friday, plus it has $3-billion more in upcoming debt payments. Unless something happens quickly, we are about to see what happens when you have a systemic collapse in a nuclear power next door to a terrorist hotbed.

So here we stand, once again on the edge of complete economic collapse.

3 thoughts on “While the rest of the world is poised on a cliff, the Pakistan economy has already fallen off”

  1. They really need to remove the floor from the stock market. If it leads to a few brokers going bankrupt then so be it. Holding up the entire market to save a few greedy brokers is crazy.

    A lot of the rest of the stuff you have written is just FUD from western writers. Why would you think that foreigners know more about our economy than Pakistanis? Its crazy to quote deluded americans. The last line of the last quote is just the sort of ignorance I am talking about:

    “Unless something happens quickly, we are about to see what happens when you have a systemic collapse in a nuclear power next door to a terrorist hotbed.”

    See these americans just see terrorism everywhere. They are emotional not rational. Collapse of our economy does not mean that we will hand over our nukes to anyone who asks for them. Also should know that one of the reasons our economy is in such bad shape is because the Americans have instructed development banks and our “allies” to not give us loans.

  2. It’s not FUD from western writers, it’s FUD from Pakistani writers.

    About the only thing western writers harp on which is unlikely is the Taliban or Al-Quaeda taking over Pakistan – and while that IS unlikely, it is POSSIBLE – so even if it never happens, it’s still there.

    Far as loans go, the country has loans up the wazzoo – you seem misguided about where the country actually is.

  3. Only equity funds arent allowing redemption.

    That too, thanks to an SECP directive that says that since equity securities are not being traded (or not being traded in sufficient volumes) to allow determination of an ACTUAL price, the NAV of the fund cannot be realistically calculated.

    Since the NAV cannot be realistically calculated, the price at which investors leave or join the fund cannot be realistically determined. (offer and redemption price is a function of NAV + or – some percent).

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