Pak market crashes; curbs on forex

KARACHI, OCT 14: Pakistan stocks finished more than seven per cent down on Thursday as confused investors decided to pull out of the mark...

KARACHI, OCT 14: Pakistan stocks finished more than seven per cent down on Thursday as confused investors decided to pull out of the market until the political uncertainty from Tuesday’s military coup ends. "It is a totally uncertain situation. No one has any idea of where things are going in Islamabad or where the market will go," said Manocher Jamal, a dealer at KASB & Co.

The Karachi Stock Exchange 100-share index ended down 92.51 points, or 7.36 per cent, at 1,164.43. There were 87 losers and only seven gainers on turnover of 173 million shares, compared to 85 million on Tuesday.

Meanwhile, cash-strapped Pakistan on Thursday took desperate steps to hold on to its meagre foreign exchange reserves amid political and economic uncertainty sparked by Tuesday’s coup. The central bank ordered money changers and kerb forex dealers to remain shut until October 20. Commercial banks were told that the few facilities available to send foreign currency abroad were no longer open.

And cash margins were imposed on several imports – another avenue of drain on foreign currency. "It seems the military is preparing for an expected halt on inflows or some sort of sanctions… They might be scared of a flight of foreign currency," one banker said.

Kerb traders are legitimate forex traders who work outside the banking system and don’t conform to banking hours. Pakistan’s cash foreign exchange reserves totalled $ 1.45 billion on October 2.

The central bank, the State Bank of Pakistan, called a bank holiday on Wednesday in the wake of the coup which overthrew Prime Minister Nawaz Sharif. It was not known if the bank was operating on its own, with Finance Ministry officials or with the military.

On Thursday, it issued a stream of circulars to pre-empt a foreign exchange crunch – similar to moves after Pakistan conducted its nuclear tests on May 28 last year. Financial analysts said the central bank action suggested authorities were expecting a period of foreign exchange difficulties, as almost all Pakistan’s bilateral and multilateral donors have said there would be problems funding the country under a military regime.