Govt expects $475m inflow as Pakistan’s index upgraded

Pakistan no more needs IMF support, claims finance minister

ISLAMABAD: Pakistan’s benchmark index jumped as much as 2.8% in early trade on Wednesday, climbing to a record high after the country’s stock market was reclassified overnight and included in the MSCI’s ‘emerging market’ index category.

After reclassification by the US analytic firm, Pakistan is likely to receive about $475 million foreign portfolio investment in the next one year, said a visibly beaming finance minister. “We were very confident that Pakistan will be there,” Ishaq Dar said while felicitating the nation.



Dar also used the occasion to announce that “Pakistan no more needs the International Monetary Fund’s support after conclusion of the upcoming last review of the $6.2 billion bailout programme”. He said Pakistan's reclassification also acknowledged the nation's progress in macroeconomic stability, which, he said, the government achieved ahead of the people’s expectations.

 

In the early hours of Wednesday, the MSCI – a global index provider – announced that its ‘Pakistan Index’ will be reclassified to the ‘emerging markets’ status. Dar said the decision would boost the prospects of receiving about $475 million foreign portfolio investment in short-term.

Foreign investment in Pakistan is not picking up despite improvements in the overall security situation and positive perception about macroeconomic stability.

Pakistan’s entry into the emerging market has come at the expense of China. The MSCI announced that it was postponing the inclusion of China’s A-shares into its Emerging Markets (EM) Index due to various impediments to global investors. The inclusion of China’s A-Shares into emerging markets would have left little chance for Pakistan’s upgrade.



After inclusion into emerging markets, Pakistan’s weight in the emerging market index will be 0.19%, said Securities and Exchange Commission of Pakistan (SECP) Chairman Zafar Hijazi. “China’s inclusion in the index would have further reduced Pakistan’s weight, making it impossible to qualify,” he said.

Pakistan was part of the MSCI EM Index between 1994 and 2008. However, the temporary closure of the Pakistan Stock Exchange in 2008 led the MSCI to remove it from the index and classify it as a ‘standalone country index’. The MSCI made Pakistan a part of the Frontier Markets Index in May 2009 and it has remained as such since then.

Ishaq Dar said it was a dream to reclaim the lost status.

Dar said the government has prepared a roadmap for next three years to achieve 7% GDP growth. Measures will also be taken to raise the foreign currency reserves to $30 billion in the next three years, to keep the fiscal deficit below 4% of GDP and to maintain inflation within single digit, he said.



The finance minister said the country would say goodbye to the IMF following the upcoming 12th review of fund as he recognised IMF’s contribution and assistance towards stabilising Pakistan’s economy.

In the remaining period, Dar said, the government would focus on achieving high growth trajectory. “Pakistan’s economy has potential to reach at very high place in the world.”

However, the SECP chairman said the upgrade in status had come with more responsibilities and required the regulator to become more vigilant and careful.  He cautioned that the SECP would be more attentive and stringent to maintain discipline in market and confidence of investors. “The challenge ahead is the divestment of stock exchange,” he added.

Talking to The Express Tribune, Pakistan Stock Exchange’s (PSX) Board of Directors’ Chairman Muneer Kamal said, “The improvements in macroeconomic and regulatory environments helped get back the emerging market status.”

He said during the recent PSX’s road shows in London, New York and Hong Kong, big fund managers from all over the world were briefed on recent reforms in the capital market as well as on economic turnaround in Pakistan. “The world has now recognised that Pakistan’s economy is stable and offers excellent investment opportunities,” he added.

Published in The Express Tribune, June 16^th, 2016.