Government loses $12 billion in volumes-starved capital market

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Government of Pakistan incurred a huge financial loss of $12 billion, more than the dollar-hungry country receives annually on account of worker remittances, in the country’s volumes-starved capital market during last four years. The country’s capital market is transiting through one of the most difficult phases mainly because of the prevailing serious liquidity crunch and extremely low level of investors’ confidence, thanks to the 2008 market crash and the imposition of ill-thought-out levies like the Capital Gains Tax (CGT).
According to Chairman Securities and Exchange Commission of Pakistan (SECP) Muhammad Ali, the above factors had eventuated into decreased market volumes and the market capitalisation currently had dropped to $33 billion from $75 billion of the peak time four years ago. “Government of Pakistan owns 30 per cent of this market capitalisation which means the loss to the government due to the issues faced by capital market is $12 billion (one trillion in rupee terms),” SECP chairman told a ceremony held Saturday at Karachi Stock Exchange on “Serving Investors and Industry” in the presence of Federal Finance Minister Dr Abdul Hafeez Sheikh.
SECP chief said in the backdrop of 2008 liquidity crisis and the imposition of CGT, the current turnover at the country’s bourses was less than 10 per cent of what it was six years ago. “New listings from good quality corporates are finding it difficult to get fully subscribed,” he told the gathering. He urged the need for certain immediate and long-term reform-based measures to revive the capital market. “The immediate steps needed to save our capital market from complete collapse are resolution of the issues of investor confidence, liquidity crunch and brokers’ capacity to do business,” he proposed.
The regulator has proposed a CGT collection mechanism on the clearing agent level, accompanied by a 3 month grace period, reduction in WHT rate and relaxation with respect to source of income information in the filing of income tax returns. Further, The GoP has decided to adjust circular debt worth PKR 150b through issuance of TFCs. Reportedly, banks have agreed to subscribe to these issues which, in turn, is likely to provide relief to the energy and banking sectors by freeing up stuck loans of the energy companies into TFCs thus enabling restart of income stream for banks while providing them capital allocation benefits.

1 COMMENT

  1. PT:

    Please stop dramatizing with headlines. These are all paper loss and aberration in the market. The key is to hold the brick and mortar intact and once the economic activity gets put into full gear, these losses are wiped out almost overnight.

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