Bloomberg July 24, 2002
Pakistan's Stock Rise Tied to International Aid, Analysts Say
Washington, July 24 (Bloomberg) -- Pakistan's stock market,
the world's best performing this year, is being helped by
international aid delivered because of the country's support for
the U.S. war against terrorism, analysts said.
The Karachi Stock Exchange Index has risen more than 40
percent this year, even as President Pervez Musharraf has dealt
with a military standoff with India over the disputed region of
Kashmir and the hunt for members of Osama Bin Laden's al-Qaeda
group who fled the U.S.-led war in neighboring Afghanistan.
The U.S. has helped Pakistan secure a $1.37 billion loan from
the International Monetary Fund and more than $700 million from
the World Bank to stabilize its economy since Pakistan joined the
U.S. in the war in Afghanistan.
After conducting nuclear tests in 1998, Pakistan was
``isolated and was having difficulties dealing with international
financial institutions,'' said John Pike, director of
globalsecurity.org, a defense policy organization. ``Now all that
has changed.''
Still, the stock market's dramatic rise does not reflect the
country's economic situation, analysts said.
``Pakistan has made no substantial changes in its economy to
warrant this rise in the stock market,'' said Mansoor Ijaz, a
member of the Washington-based Council on Foreign Relations. ``The
politics is as gloomy and foreign investment is not coming in. So
the rise in the stock market is just a mechanical change.''
Pakistan says the economy probably grew 3.6 percent in the
year through June, compared to an average of 4.5 percent from 1988-
1999.
Poverty
The proportion of those living in poverty in the South Asian
nation has doubled to about 33 percent in the last decade and the
average daily income of its 140 million people is about $1.20, the
Asian Development Bank says.
In a report on Pakistan's economy, the IMF said that
political and terror risks have made it impossible for the
government to sell some state assets, establish trade ties, and
increase tax revenue.
Structural reforms undertaken by Musharraf's government may
have stabilized the stock market without improving the economic
situation, said analysts at a conference at the Woodrow Wilson
Center for International Studies, a non-partisan policy
institution.
``This government is more honest,'' said Avais Hussain, Chief
Executive of Angora Textiles Ltd., a Pakistan based textile
company. ``They have brought more integrity and transparency in
decision making.''
While the government has undertaken changes to curtail
defense spending, restructure debt and build foreign reserves,
there is no driver of growth in the economy yet, said Pervez
Hasan, the chairman of Pakistan's Debt Reduction Committee and
former chief economist of the World Bank.
The rise in the stock market may have come from domestic
buying because there had not been much foreign investment to
indicate investor confidence in Pakistan's economy, Ijaz said.
The markets also improved because the U.S. removed the
sanctions it imposed after the 1998 nuclear tests, Ijaz said.
``These are mechanical changes that are happening because the
market fell precipitously after the nuclear tests,'' Ijaz said.
--Saumya Roy in the Washington newsroom at (202)624-1904, or
sroy4@bloomberg.net Editor: O'Connell.
Copyright 2002 Bloomberg
