May 13, 2008, 13:02 GMT
Karachi - Pakistan's financial markets roiled by a month of political uncertainty and rumours of fresh taxes being imposed surprisingly on Tuesday welcomed the breakup of political coalition, analysts said.
However, the overall reaction across the trading community was mixed.
'It was certainly welcomed by the market hugely because the politics is now going to be one-sided instead of in doldrums,' said Khurram Shezad, head of research, at Invest Cap Securities.
The Karachi Stock Exchange's key KSE-100 Index was leaped up by 255 points to close at 14,542.50 against Monday's 14,286.61 points, a hefty increase of around 1.9 per cent.
Similarly, in the inter-bank market the Pakistani rupee recovered to close at 68.20/68.40 against the US dollar as compared with 68.25/68.75 on Monday.
In an unofficial open market the rupee also surprisingly strengthened against the US dollar to close at 68.00/68.20 against 68.50/68.70 on Monday.
'Both inter-bank and open market traded in almost the same levels today,' said a dealer at Dollar-East Exchange.
Nawaz Sharif, the former premier and head of Pakistan Muslim league-Nawaz, the second largest coalition partner on Monday announced the withdrawal of its ministers from the six-week-old set- up as it failed to honour the pledge to reinstate some 60 judges axed by President Pervez Musharraf.
The key finance minstry was amongst the 15 ministries that nine ministers of PML-N were holding.
On Tuesday all cabinet members from the party tendered their resignation to Prime Minister Yousaf Raza Gilani, who refused to accept them, saying he would decide on the issue after consultations with his Pakistan Peoples Party's head, Asif Ali Zardari, widower of slain Benazir Bhutto.
However, the financial markets are buzzing with rumours that change in the ministry of finance is on the cards. Pro-market faces such as seasoned investment banker and former country head of Citibank (Pakistan), Shaukat Tarin, or Naveed Qamr, who currently holds a portfolio at the Privatization Commission, were being discussed as outgoing minister Ishaq Dar's successors.
'Both are very good names and will be welcomed by the market,' said Shehzad.
Dar was quite critical of the policies of previous government led by Shaukat Aziz as well as the slow pace of tax collection.
He was planning to impose anywhere between 10 to 15 per cent of Capital Gains Tax (CGT), something which Pakistan's financial markets have been severely opposing for the last five years.
'The breakup in the coalition was certainly a welcomed move and improved sentiments in the financial markets as both Tarin and Naveed are very pro-market,' said Nabeel Iqbal, head of marketing at Khannani and Kalia, the country's largest foreign exchange firm.
Shehzad said the change in the Finance Ministry would certainly help the market pundits to convince the federal government for not imposing the CGT in the upcoming budget for fiscal 2008-2009.
Pakistan is expecting a shortfall of around 20 per cent in tax collections amid rising trade deficit of around 16 billion dollars in 10 months (July-March) compared with 13 billion in an entire 12 months last year (July-June) due to a sharp spike in international oil prices. Pakistan imports 85 per cent of its energy needs.
The Pakistani rupee during the last month lost over 6 per cent against the dollar while the KSE-100 Index lost over 700 points due to directionless politics in the federal capital amid weak economic fundamentals.
Meanwhile, across the country the sentiments of the overall trading community were mixed and predicted an economic meltdown if the contentious issue of judges' reinstatement was not resolved soon.
'Smooth running at this critical juncture is a must,' said Tanveer Ahmed Sheikh, President of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI).
Tariq Sayeed, President of Chamber of Commerce and Industry for South Asian Association for Regional Cooperation, a consultative body among six South Asian nations said: 'The business community wants the coalition to remain intact.'
Your Talkback on this Story