Stock market fund worth Rs20b faces hurdles
Govt lacks capacity to issue sovereign guarantee under IMF loan conditions
SECP Chairman Farrukh Sabzwari had been hopeful that the fund would be launched within a week or 10 days following the ECC’s approval. PHOTO: FILE
KARACHI:
The creation of the government-approved stock market fund worth Rs20 billion to arrest a persistent slide at the Pakistan Stock Exchange (PSX) is facing hurdles as the government is unable to issue sovereign guarantee under the International Monetary Fund (IMF) loan programme.
“Creation of the market support fund has been delayed…due to the limitations put by the IMF [loan programme worth $6 billion for Pakistan],” said a high official of the federal finance ministry, who spoke on condition of anonymity.
The Economic Coordination Committee (ECC) of the cabinet approved the establishment of the fund, called the State Enterprise Fund (SEF), on May 30, 2019.
Market watch: KSE-100 sheds 99 points over political instability
The delay occurred as the government faced constraints to issuing the sovereign guarantee. State-owned institutions - which confirmed their capital contribution to the fund - have sought sovereign guarantee to cover the risk of losing money.
“I am not sure whether the fund will still be set up. I have to check it with the officials concerned,” the ministry official added.
Adviser to Prime Minister on Finance and Revenue Dr Abdul Hafeez Shaikh said at a meeting with stockbrokers some three weeks ago in Karachi that the fund would be launched in the next four to five days.
Meanwhile, the PSX’s benchmark KSE 100-share Index dropped 12%, or 4,308 points, and closed at the 41-month low at 31,666 points on Friday compared to the three-year low of 35,975 points hit on May 30 when the ECC approved the fund.
Securities and Exchange Commission of Pakistan (SECP) Chairman Farrukh Sabzwari had been hopeful that the fund would be launched within a week or 10 days following the ECC’s approval.
Arif Habib Limited Chief Executive Officer Shahid Ali Habib pointed out that the IMF, under the loan programme, set a limit on the issuance of sovereign guarantees by the government at Rs1,611 billion.
The government has fully utilised the capacity as it has issued guarantees, among others, for the Sukuk (Islamic bond) floated to reduce circular debt in the energy sector and commercial loans taken by public-sector enterprises (PSEs) like Pakistan International Airlines (PIA) and Pakistan Steel Mills, he said.
“The government may create the fund as and when a sovereign guarantee (worth around Rs20 billion) is vacated,” he voiced hope. “It all depends on the government’s intentions.”
Some of the stockbrokers, including those who remain in contact with Federal Minister for Economic Affairs Hammad Azhar, have completely lost hope in the fund.
PSX Stockbrokers Association General Secretary Adil Ghaffar is among those stockbrokers. “The market may drop by another four to five thousand points until the faltering economy shows signs of recovery,” he said.
State Bank of Pakistan (SBP) Governor Dr Reza Baqir expressed the hope the other day that some of the economic indicators, including inflation and fiscal and current account deficits, would be in better positions in second half (January-June) of the current fiscal year 2019-20.
No need for the fund
Seasoned stockbroker Aqeel Karim Dhedhi, however, said there was no need for creating the Rs20-billion fund.
Some of the state-owned institutions, which have confirmed their contribution of capital, have hundreds of billions of rupees in their hands individually. If the institutions really want to support the market, then what are they waiting for, he asked.
“It is the best time to invest in the PSX. Shares across the board are at historically low prices these days,” he said.
He held some of the state-owned institutions responsible for the massive drop at the PSX, saying they had sold stocks worth billions of rupees.
Market watch: KSE-100 loses ground after close of rollover week
“A state-owned institution alone has sold shares worth Rs150 billion under the current cycle of depression at the PSX,” he claimed.
The institutions which have confirmed their participation in the fund, but waiting for the sovereign guarantee, include National Bank of Pakistan (NBP), State Life Insurance Corporation, Employees’ Old-Age Benefits Institution (EOBI) and National Insurance Company Limited.
Dhedhi, however, voiced hope that the market may see the launch of the fund but without the sovereign guarantee.
Published in The Express Tribune, August 4th, 2019.
The creation of the government-approved stock market fund worth Rs20 billion to arrest a persistent slide at the Pakistan Stock Exchange (PSX) is facing hurdles as the government is unable to issue sovereign guarantee under the International Monetary Fund (IMF) loan programme.
“Creation of the market support fund has been delayed…due to the limitations put by the IMF [loan programme worth $6 billion for Pakistan],” said a high official of the federal finance ministry, who spoke on condition of anonymity.
The Economic Coordination Committee (ECC) of the cabinet approved the establishment of the fund, called the State Enterprise Fund (SEF), on May 30, 2019.
Market watch: KSE-100 sheds 99 points over political instability
The delay occurred as the government faced constraints to issuing the sovereign guarantee. State-owned institutions - which confirmed their capital contribution to the fund - have sought sovereign guarantee to cover the risk of losing money.
“I am not sure whether the fund will still be set up. I have to check it with the officials concerned,” the ministry official added.
Adviser to Prime Minister on Finance and Revenue Dr Abdul Hafeez Shaikh said at a meeting with stockbrokers some three weeks ago in Karachi that the fund would be launched in the next four to five days.
Meanwhile, the PSX’s benchmark KSE 100-share Index dropped 12%, or 4,308 points, and closed at the 41-month low at 31,666 points on Friday compared to the three-year low of 35,975 points hit on May 30 when the ECC approved the fund.
Securities and Exchange Commission of Pakistan (SECP) Chairman Farrukh Sabzwari had been hopeful that the fund would be launched within a week or 10 days following the ECC’s approval.
Arif Habib Limited Chief Executive Officer Shahid Ali Habib pointed out that the IMF, under the loan programme, set a limit on the issuance of sovereign guarantees by the government at Rs1,611 billion.
The government has fully utilised the capacity as it has issued guarantees, among others, for the Sukuk (Islamic bond) floated to reduce circular debt in the energy sector and commercial loans taken by public-sector enterprises (PSEs) like Pakistan International Airlines (PIA) and Pakistan Steel Mills, he said.
“The government may create the fund as and when a sovereign guarantee (worth around Rs20 billion) is vacated,” he voiced hope. “It all depends on the government’s intentions.”
Some of the stockbrokers, including those who remain in contact with Federal Minister for Economic Affairs Hammad Azhar, have completely lost hope in the fund.
PSX Stockbrokers Association General Secretary Adil Ghaffar is among those stockbrokers. “The market may drop by another four to five thousand points until the faltering economy shows signs of recovery,” he said.
State Bank of Pakistan (SBP) Governor Dr Reza Baqir expressed the hope the other day that some of the economic indicators, including inflation and fiscal and current account deficits, would be in better positions in second half (January-June) of the current fiscal year 2019-20.
No need for the fund
Seasoned stockbroker Aqeel Karim Dhedhi, however, said there was no need for creating the Rs20-billion fund.
Some of the state-owned institutions, which have confirmed their contribution of capital, have hundreds of billions of rupees in their hands individually. If the institutions really want to support the market, then what are they waiting for, he asked.
“It is the best time to invest in the PSX. Shares across the board are at historically low prices these days,” he said.
He held some of the state-owned institutions responsible for the massive drop at the PSX, saying they had sold stocks worth billions of rupees.
Market watch: KSE-100 loses ground after close of rollover week
“A state-owned institution alone has sold shares worth Rs150 billion under the current cycle of depression at the PSX,” he claimed.
The institutions which have confirmed their participation in the fund, but waiting for the sovereign guarantee, include National Bank of Pakistan (NBP), State Life Insurance Corporation, Employees’ Old-Age Benefits Institution (EOBI) and National Insurance Company Limited.
Dhedhi, however, voiced hope that the market may see the launch of the fund but without the sovereign guarantee.
Published in The Express Tribune, August 4th, 2019.