Market sentiment may well be fickle, and the bear hug on the KSE will likely fizzle out sooner rather than later, but far deeper issues have come to the fore as the Saudi bombshell – to dump stakes in HUBCO – rattles the bourse in the immediate term. Citing circular debt and rupee nosedive concerns, Jeddah based Xenel Industries has now unnerved international observers just as the government of Pakistan was posturing towards an accommodative monetary environment to attract local as well as foreign investment, crucially needed to stimulate growth and ease unemployment.
We have repeatedly warned that both circular debt and rupee weakening will wrongfoot the government’s initiatives. True, the monetary situation must ease to undo unfair private sector crowding out. But with chronic power shortage and a constantly depreciating rupee, efforts at attracting investment absent essential institutional and infrastructural upgradation amount to putting the cart before the horse. The Saudi ditch confirms fears that serious investors will not accept these measures at face value. Relevant authorities will need to put the muscle where the mouth is, and ensure on-ground progress if the easing exercise is to bear fruit.
There can be no two views on the circular debt and subsequent energy shortage issue. That a credible, lasting solution continues to evade authorities reflects poorly on their appreciation of the issue’s centrality to the economic/social/political mix. The rupee, too, has depreciated significantly against the dollar in an environment when the greenback has steadily deflated, barring increasingly rare windows of risk appetite triggered by monetary rhetoric in the west, reflecting extremely weak fundamentals. If these problems are not addressed, or at least taken up far more seriously at the highest level, HUBCO will be just the tip of the iceberg. Dark clouds have been gathering on the economic front for quite some time now. It appears that they might not be too far from unleashing a debilitating torrent on the economy. We hope authorities will draw the right lessons from this episode, and ensure there will be no re-runs.