The bears reigned supreme as Karachi Stock Exchange (KSE)100-Index plunged by 226.33 points to close at 12,908.23, a loss of 1.75% on Monday. Other Asian countries also saw their stocks slump, India's Sensex lost 3.3%, Japan's main Nikkei 225 index slid 2.1% and Taiwan's Taiex shed 1.8%.
While the Asian and international stocks have been in decline since the beginning of the year, the latest round of losses was triggered by an $11 a barrel spike in oil prices with renewed inflation fears. On Monday, oil prices slid slightly, though this did little to ease concerns in Asia. The US markets, however, have opened higher on Monday morning.
Central banks across the globe have warned that interest rates may have to rise as they look to keep inflation under control, despite the fact that economic growth is slowing in key areas such as the US and EU.
Pakistan's State Bank has recently raised interest rates from 10% to 12.5% and cut 2007-8 growth from 7.2% to 5.8%. This forecast comes on the heels of dire talk of economic "meltdown" by the new leadership that is facing serious political instability amid growing differences in the PPP-PML(N) coalition government. The ongoing unease with new leadership is continuing to accelerate loss of confidence in Pakistan's economy by businesses, investors and consumers.
With the dramatic rise in international commodity prices, the food and fuel subsidies have contributed to Pakistan's rising budget deficit, which the central bank said would reach 6.5 percent to 7 percent. The deficit was just 4.3 percent in fiscal 2007. With imports rising faster than exports, the central bank said Pakistan's current account deficit will rise between 7.3 percent and 7.8 percent - a record high.
While it is true that at least part of the inflation in Pakistan is imported from global markets, it is important for the Pakistani leadership not to use it as an excuse for inaction on the economic front. Faced with international turmoil, it becomes even more important to assert leadership in economic matters to keep the national economy afloat and able to recover quickly in the future.
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