PM likely to announce bailout package for stock market

PSX officials ask prime minister to inject Rs20b into market revival

KARACHI: Prime Minister Shahid Khaqan Abbasi has expressed concern over the ailing Pakistan Stock Exchange (PSX) and may announce a bailout package to revive the market in the next 15 to 20 days.

Asia’s best performing market in 2016 has witnessed a drop of 25% in the KSE-100 index in the last four and a half months to 39,846.78 points on Friday from an all-time high of 52,876.46 points on May 24.

A delegation of some 25 PSX officials and brokers, which called on Abbasi at the Governor House on Saturday, recommended formation of a fund worth Rs20 billion that would be injected into the PSX to revive the market, meeting participants said.



Besides, they highlighted several issues forcing the market to perform poorly. These were mostly related to taxation, which they believe was directly hurting the market since the budget announcement at the end of May.

Seasoned broker Aqeel Karim Dhedhi hoped for corrective measures to be taken by the prime minister in a week or 10 days.

“The prime minister has agreed to be the chief guest at the PSX Top 25 Companies Awards, which we are planning to hold in the next 15 to 20 days,” said Arif Habib, a former chairman and one of the senior brokers.

Meeting participants said Abbasi asked them to submit the raised issues in writing. “We will submit the highlighted issues along with recommendations in two to three days,” Habib added.

The premier ordered the constitution of a committee under the chairmanship of Sindh Governor Mohammad Zubair, who has remained a key member of the PML-N economic team.

Other possible members of the committee were Habib and Dhedhi, it was learnt.

The committee was tasked with taking a deeper look into the issues and submit its report along with possible corrective measures as soon as possible.

The participants said when the PSX crashed in 2008, the then government constituted a fund worth Rs20 billion to revive the market and gave the money to National Investment Trust (NIT) for investment in state-owned listed firms.

The strategy did not only work, but NIT returned the Rs20-billion soft loans to banks in addition to achieving earnings for it and its unit holders. “NIT still manages the fund with investment size of Rs9 billion,” a participant said.



Officials said the government had adopted the practice of imposing a new tax in every budget. The practice has become a hurdle in the way of market performance.

A broker said there were multiple taxes at different levels, which the listed companies, brokers and traders were paying. These included 31% corporate tax, 3% super tax, 2% EOBI tax, 15% dividend tax, 15% capital gains tax (CGT), taxes on bonus shares and brokers’ trading tax.

“We have urged the prime minister to immediately take corrective measures in relation to the tax on bonus shares, CGT and brokers’ trading tax,” Dhedhi said.

Earlier, the PSX in its budget proposals had recommended that the federal government should collect 5% tax on the value of bonus shares instead of 5% tax on the face value it collects now.

The acceptance of the proposal would help the government collect Rs2.5 billion compared to Rs0.5 billion it collected on average in the last three years.

Habib said, “rationalisation of taxes would pay back the government as they would help it collect higher taxes,” he said.

The government has imposed a uniform rate of CGT at 15% for tax return filers and 20% for non-filers in the last budget as opposed to earlier multiple tax rates according to the holding period of shares.

“The CGT collection has dropped to half in the first two months of the current fiscal year. The government had collected Rs18 billion from CGT in the previous fiscal year 2017,” he said.



No need for IMF package

Abbasi was quoted as saying that there was no need for going to the International Monetary Fund (IMF) for seeking a bailout package despite the economy facing the tough challenge of managing the current account deficit.

The government had also no plans to let the rupee depreciate against the dollar and other major currencies as it was taking measures to revive exports, which was a major concern in managing the current account deficit, he was cited as saying by the participants.



Published in The Express Tribune, October 15^th, 2017.

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