And irrational exuberance
Nobody was happier than Dar sahab after the MSCI upgrade to emerging market even though the pat on the back owed entirely to robust stock market activity, not macroeconomic indicators; no matter how happy IMF has been with the finance ministry. The market has, indeed, come a long way since the same rating agency downgraded Pakistan to frontline state back in ’08 after a floor was imposed when Gen Musharraf resigned, effectively paralysing investment. Now, since all major investment banks have appreciated the index – which was one of the best in the region in the outgoing year – and a good $400m is expected to flood the capital market over the next year, the importance of carefully nurturing these inflows cannot possibly be overstated.
The finance minister seems convinced this turnaround was the result of “…macroeconomic stability, economic reforms and good governance by the incumbent government”. But stellar stock market performance goes back to the Musharraf/Shaukat days. That was when opposition politicians, which included good Dar sb all the way from Dubai, ridiculed the government of the day for hiding dismal macroeconomic performance behind a buoyant stock market; and, of course, that the two were not inter-related. Now, by doing what Musharraf and later Zardari did, PML-N’s economic team is only contradicting itself.
Also, Dar sb no doubt remembers that GDP growth fell short almost a whole percentage point just a few days ago. And the extra fiscal room – which helped the deficit and tamed inflation – might also be drying as Brent is showing signs of life after all. The finance ministry, therefore, must immediately turn its attention to stimulating investment and jobs in the real economy, instead of merely relying on CPEC. The money market environment is ideally suited for more jobs and subsequently higher wages and more savings, which can then be routed back to the stock market, among other things. But expecting to win points for a strong stock market at a time of sluggish economic activity amounts to little more than irrational exuberance.
