Benazir’s death may have a crippling effect on Pakistan’s economy
The death of former Pakistani Prime Minister
Benazir Bhutto saw stocks markets’ globally take the worst hit since December 11, 2007. Here’s the list of casualties... Dow Jones plunged 1.4%; Hang Seng was down by 1.1%; KOSPI (South Korea) shed 0.6%; the Sanghai Composite lost 0.89%; S&P ASX (Australia) tanked 0.2%. Markets in Pakistan resumed trading after a three day halt and hastily lost massive 4.7% (as on Dec 31, 2007). Well, if markets are anything to go by then such a huge correction in Karachi, which has been one of the best performing markets in the region with 40% plus appreciation in the last 12 months, confirms some rude implications for the country’s markets and its economy.
However, the death of a former prime minister of a Third World country, in itself, is not as catastrophic an event that would cause any major disruptions to global stocks. It was instead the expected deterioration of law and order, potential of a civil war kind of situation that might arise in a nuclear weapons-armed Pakistan, coupled with the weakening of institutions in the country that actually sparked off the fears among global investors. “The big takeaway from this horrible event is that Pakistan could slide into a civil war of sorts,” reveals Win Thin, senior currency strategist, Brown Brothers Harriman. And if the horrible incident leads to a kind of a disconnect between Pakistan and the US, it may spell more trouble for Pakistan’s economy, which is still dependent on America in terms of foreign aid and trade. So, if the combination happens, the stupendous performance of the Pakistan economy would come to a screeching halt. As a result of economic reforms initiated by General Pervez Musharraf, Pakistan has attracted foreign capital. Any further economic turbulence would ward off these inflows.
S&P’s Ratings Services said that Pakistan’s credit rating could be lowered, if the assassination of Benazir Bhutto precipitates heightened levels of violence and political turmoil. “The prevailing negative outlook on the ratings of Pakistan encapsulates to a large extent the possible risks to the political process, including attempts on the life of political leaders after a number of such past incidents. However, a further weakening of Pakistan’s institutions, in conjunction with rising levels of violence and disorder, and the postponement of the January 8 elections would lead to a rating downgrade,” said Agost Benard, Primary Credit Analyst, S&P.
Many would see this event as only the death of democracy, but it would easily turn out to be the death of one of the most promising markets also.
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Source : IIPM Editorial, 2008
The death of former Pakistani Prime Minister
Benazir Bhutto saw stocks markets’ globally take the worst hit since December 11, 2007. Here’s the list of casualties... Dow Jones plunged 1.4%; Hang Seng was down by 1.1%; KOSPI (South Korea) shed 0.6%; the Sanghai Composite lost 0.89%; S&P ASX (Australia) tanked 0.2%. Markets in Pakistan resumed trading after a three day halt and hastily lost massive 4.7% (as on Dec 31, 2007). Well, if markets are anything to go by then such a huge correction in Karachi, which has been one of the best performing markets in the region with 40% plus appreciation in the last 12 months, confirms some rude implications for the country’s markets and its economy.However, the death of a former prime minister of a Third World country, in itself, is not as catastrophic an event that would cause any major disruptions to global stocks. It was instead the expected deterioration of law and order, potential of a civil war kind of situation that might arise in a nuclear weapons-armed Pakistan, coupled with the weakening of institutions in the country that actually sparked off the fears among global investors. “The big takeaway from this horrible event is that Pakistan could slide into a civil war of sorts,” reveals Win Thin, senior currency strategist, Brown Brothers Harriman. And if the horrible incident leads to a kind of a disconnect between Pakistan and the US, it may spell more trouble for Pakistan’s economy, which is still dependent on America in terms of foreign aid and trade. So, if the combination happens, the stupendous performance of the Pakistan economy would come to a screeching halt. As a result of economic reforms initiated by General Pervez Musharraf, Pakistan has attracted foreign capital. Any further economic turbulence would ward off these inflows.
S&P’s Ratings Services said that Pakistan’s credit rating could be lowered, if the assassination of Benazir Bhutto precipitates heightened levels of violence and political turmoil. “The prevailing negative outlook on the ratings of Pakistan encapsulates to a large extent the possible risks to the political process, including attempts on the life of political leaders after a number of such past incidents. However, a further weakening of Pakistan’s institutions, in conjunction with rising levels of violence and disorder, and the postponement of the January 8 elections would lead to a rating downgrade,” said Agost Benard, Primary Credit Analyst, S&P.
Many would see this event as only the death of democracy, but it would easily turn out to be the death of one of the most promising markets also.
For Complete IIPM Article, Click on IIPM Article
Source : IIPM Editorial, 2008
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