PSX suggests perpetual amnesty scheme to attract undocumented money to capital market

KARACHI: Pakistan Stock Exchange (PSX) has proposed a perpetual amnesty scheme to form a bridge between undocumented money and the equity market, as the capital actually sits in the informal sector.

“PSX has forwarded a proposal to Finance Minister Asad Umar for a permanent amnesty scheme to attract the undocumented capital to the equity market. FM has been quite receptive and we expect such a scheme in the coming finance bill,” Managing Director PSX Richard Moorin said. He was speaking at the ‘Financing to Support Make in Pakistan’ – an event organized by Pakistan Business Council (PBC) on Saturday.

He said 70 percent of the Pakistan’s economy was undocumented, and this money could not come to the capital markets for being undocumented. “If only a fraction of this capital comes to the market, country’s market capitalization to GDP ratio will reach at 25 percent, which is now just 18 percent, lowest among the regional peers,” MD PSX said.

Moorin said capital markets played a vital role in a country’s economy, as the market enable formation and efficient allocation of the capital. “There can be no economically successful Pakistan without a vibrant capital market.”

Underlining the importance of a developed bond market, Moorin suggested that the finance ministry, central bank, commercial banks, stock brokers, the stock exchange and the issuers should sit together and come with a plan to develop a vibrant bond market.

He also criticized the National Saving Schemes (NSS) saying that the money dumped in these schemes should come to the capital markets. “Government is paying Rs100 billion/annum as interest on the money it borrows through the saving schemes. It is a huge case for government to restructure and reform the National Savings.” MD PSX also talked about removing structural as well as regulatory impediments.

Speaking on the occasion, Chairman Interloop Limited Musadaq Zulqarnain said twin deficit was the biggest challenge facing Pakistan, which can be dealt with only through increased exports and import substitution. “And for this purpose country’s manufacturing sector needs massive investment for capacity enhancement, technology upgrading and value addition.”

Interloop Limited is in the book building phase of at the country’s largest Initial Public Offering (IPO) at country’s stock market. The company aims to raise a capital equivalent of $40 million.

“Raising capital through the equity market is a way viable and better than obtaining credit from the banks. If the manufacturing sector wants to grow on a massive scale, bank credit is not the answer,” Zulqarnain said.

Ex-Governor State Bank of Pakistan Salim Raza said country had seen a shift to services from manufacturing because of lack of industrial policy and that the financial sector had not grown. “If credit starts shrinking, money starts shrinking and investment starts shrinking,” Raza said adding the financial sector needed massive restructuring.

He suggested the government to restructure its domestic debt management and objectives as 82 percent of the government’s borrowings were from banks.

He urged the government to empower and facilitate current public sector development lenders, as it was not the commercial banks’ job to invest in infrastructure development. Salim Raza suggested to facilitate financial inclusion via digitization.

Earlier, CEO Pakistan Business Council (PBC) Ehsan A. Malik informed that PBC looked after the interest of the country and not any business or sector of economy. PBC works closely with relevant government departments, ministries, regulators and institutions, as well as other organizations and professional bodies.

Highlighting the challenges facing the country, Malik said Pakistan was observing a premature deindustrialization, which would lead to unemployment, current account deficit and declining tax revenues. “If the industry is unable to create jobs, there will be a social discord, while increased value-added exports and import substitution is required to deal with the balance of payment situation. And more importantly, country needs a broader tax base”.

He said Pakistan had approached 12 times in the past and this would be the 13th time adding there was something fundamentally wrong, “and that is that we undermined our manufacturing base. Our manufacturing growth is 6.5 percent, which is lowest among the regional peers.”

Commenting on the free trade agreements (FTAs), CEO of PBC said these agreements were poorly negotiated, which resulted in increased import multiples. “However, the government is listening to the business community and we hope the much needed structural correction will be affected.”

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