Pakistan’s lockdown gamble appears to have paid off

Pakistan’s stock exchange isn’t typically seen as one of the world’s best, but in recent weeks it has outperformed almost every other rival market. In terms of weekly profit, the Pakistan stock market was among the world’s top-performing last week. In August, it was Asia’s best and the fourth-best globally. For many, this has been a surprising turnaround in a country that registered a nine-year low growth rate only 12 months ago. Not to mention that the Pakistan stock exchange crashed with much of the rest of the global market when COVID-19 hit in March. So what explains Pakistan’s success?

It is no coincidence that the stock market highs have come in light of Pakistan transforming into a rare and perhaps unlikely COVID-19 success story, having largely curtailed the spread of the virus in a region still reeling with the impact of the pandemic. But while Pakistan’s apparent triumph over COVID-19 still remains a healthcare mystery, the roots of the stock market’s rally are more discernible. And it is another story that Imran Khan’s government will happily crow about after two tumultuous years in power.

Taking over in August 2018, when a financial crisis was already brewing in Pakistan, Khan oversaw a woeful situation in which the country’s economy was dragged down to new nadirs as his government procrastinated over the inevitable International Monetary Fund deal. The bailout for the country in July 2019 practically handed over the economy to the IMF repeating yet another — 13th to be precise — cycle of imposed fiscal reforms. This has resulted in tangible improvement in the macroeconomic outlook since, even if the poorest are still no better off.

The improving economic numbers have been epitomized by the Pakistani rupee largely remaining stable over the past year, after losing more than half of its value against the US dollar in the previous 18 months. The Pakistan stock market similarly rallied last year in the aftermath of the macroeconomic stability promised by the IMF deal and was still going strong at the start of 2020 before COVID-19 hit. As with other countries, the initial impact of the pandemic led to dire economic figures. But Pakistan’s refusal to follow the lead of other countries and implement strict lockdown measures is paying dividends, at least for now.

***
Get a digital subscription to The Spectator.
Try a month free, then just $3.99 a month
***

In the early days, Khan’s government was criticized for what was seen as a reckless andoften contradictory approach to COVID-19. Yet Pakistan was not as badly hit as some feared. Now Khan’s bid to reopen the economy quickly, end lockdown measures early and incentivize the construction industry appears to have been correct. The stock market, led by the cement sector, the rise of oil stocks and growing exports, are signs of the wisdom in keeping the economy ticking. The uptick in economic activity has been duly backed by the State Bank of Pakistan rigorously cutting interest rates, which has directly enhanced the performances of the banking stocks and provided overall boost to businesses. Similarly, the government’s focus on digitization is reflected in the healthy performance of the IT and telecommunications sector.

The Pakistani stock market’s world-leading performance then is a combination of an ongoing recovery from the depths that the economy had shrunk to and fruitful policymaking in the time of COVID-19. Having now reached this high, the next challenge will be to maintain the trend. This, in turn, depends ongoing success against a potential second COVID-19 wave. Of course, this is far from a given. And Pakistan is also a country in which political turmoil is usually never far away. In addition to military interferences marring Pakistan’s recent history, economic instability has been further compounded by the fact that no party has been reelected in the country; before 2013, none had even completed its five-year term. Will Khan be able to avoid the fate of his predecessors and serve his full term?

Today, Khan’s government is in the middle of its mandate, and the second year of its IMF deal. And for now, at least, it seems Pakistan’s COVID strategy is paying off, both in terms of case numbers and the country’s relative economic success.

This article was originally published on The Spectator’s UK website.