The leading stock market of Pakistan, KSE-100 index lost 258.97 points to close at 9,428.44 Tuesday as traders continued panic selling fearing failure of a leading brokerage house to meet margin calls along with the reported decline in Asian markets.

Despite market’s’ southward movement, IMF today said that Pakistan’s economy is getting back on track after a balance of payments crisis 18 months ago but it still remains vulnerable to shocks and a risky market for investors,

At the end of the session the institutional buying of select stocks recovered 71 points after declining to 330 points earlier in the day.

Overall trading improved to 135.439 million shares from Monday’s 73.667 million shares.

Hasnain Asghar Ali at Aziz Fidahusein Co said that the first trading session witnessed positive numbers because of appreciating status quo in the monetary stance and imposition of new taxes on economy, and through low quantum strength in the index heavyweights.

Later, these confidence-building measures failed to contain nervous sellers because margin calls led sell-off by financial institutions enhanced the panic in the market leading to its sharp fall.

Corporate support helped in halting the downward trend and recovering 71 points before the end of the day. Traders dealt with the situation by readjusting their equity portfolios in accordance with the prescribed limits while the possible buyers holding back to trim down their holdings at available rates.

Market capitalization fell to Rs 2.657 trillion losing Rs 74 billion.

Trading at Karachi Stock Exchange is expected to follow the downturn tomorrow because of the anticipated amendments in the post budget-trading pattern.

All Pakistani Stock Exchanges followed a sliding pattern on Tuesday with LSE-25 index losing 83.99 points to reach 2962.82 points against 3046.81 points of Monday, and ISE-10 index declining from 2,362.90 to 2,330.38 points dropping 32.52 points.

In a related development IMF today suggested that political uncertainty, chronic insecurity and a budget deficit inflated by spending to tackle a militant insurgency are all threats to recovery but the outlook is far brighter than when Pakistan was on the brink of default in 2008.

Paul Ross of the International Monetary Fund (IMF) told Reuters in Islamabad today: “in terms of the economy, stabilisation seems to be taking hold … progress has been made.”

Pakistan turned to the IMF for an emergency package of loans in November 2008, when inflation was 25 per cent, central bank reserves were the equivalent of just one month of imports and the current account deficit had widened to 8.5 per cent of gross domestic product for the fiscal year 2007.

The International Monetary Fund announced Friday that it will release $1.13 billion aid package for Pakistan despite country’s failure to meet conditions specified in loan agreement.

Pakistan had requested for a waiver for its inability to meet quarterly budget deficit target and net government borrowing limits from the State Bank of Pakistan.

Murilo Portugal, IMF’s deputy managing director and acting chairman said, “preparations for important and politically difficult tax reforms have moved forward, and there has been steady progress in financial sector reform”.

IMF has approved total of $10.66 billion loan for Pakistan and with the release of $1.13 billion it has disbursed $7.27 billion so far. IMF has also accepted Pakistan’s request to merge the remaining three payment instalments into two. The IMF said Pakistan has missed two conditions because of the delay in getting pledged aid from other nations.

Portugal said, “Pakistan’s vulnerabilities remain high, due to persistent inflation, security-related spending pressures, energy-sector problems and shortfalls in revenue collection and external financing”.

United States is exerting pressure on Pakistan to send troops to North Waziristan to fight Taliban who claimed responsibility for the recent failed bombing attempt in New York. The IMF announced its readiness to adjust Pakistan’s budget deficit and borrowing targets to let Pakistan manage necessary funding for such priority programs as security.

Portugal said, “these challenges highlight the importance of pursuing a credible fiscal consolidation, maintaining a flexible exchange rate and a cautious stance to monetary policy, and improving governance”.

IMF accepted Pakistan’s request to increase the end-June 2010 budget ceiling by 0.15 percent of gross domestic product, and the floor for net foreign assets of the State Bank of Pakistan was raised by $300 million.

Short supply of US dollars led to further depreciation of Pakistan rupees Tuesday.

In active forex trade Pak rupee lost 11 paisas against the dollar to close at 84.10 rupees to a dollar in the open market from the last week’s trading day close of 83.99. Trading activity was thin in the currency market during the day. The rupee depreciated over short supply of dollars as exporters were not active.

“The global markets open for the day trade in evening as per Pakistan Standard Time, which hampered the inflow of dollars,” said Owais-ul-Haq, dealer at IGI Securities. He hoped that inflow of dollars would stabilise the rupee on Tuesday.

In the intra-day trading the rupee touched day-high of 84.13 rupees to a dollar but eased to 84.10. The rupee was stable during the last week on higher inflow of dollars in terms of remittances and lower demand of import payments.

Currency experts forecast that rupee would strengthen as some pledges of investment made by companies in telecom sector. The further growth in remittances would also support the local currency to improve against the dollar, dealers said.

The country has received remittances to the tune of $6.55 billion during the first nine months of the current fiscal year showing growth of 16 percent over the corresponding period of the last fiscal year. In inter-bank trading the rupee was stagnant and the buying and selling stood at 83.90 and 84.10 rupees to a dollar.

Pakistan rupee gained esteem against US dollar but lost ground to the Euro Wednesday. Forex traders in Karachi Thursday plan to hold a short position on the US dollars with expectations that it will decline further.

Buy rate for dollars in the interbank market today were Rs. 85.00 and sell rates were Rs.85.05. In both directions Pakistan rupee was standing strong.

During the Asian trade dollar fell to its lowest in more than two months against yen as investors dumped long positions against other currencies that had built up to levels not seen in more than a year.

Investors have been picking up dollars in recent months as Greece’s credit and fiscal woes hit the euro and worries over a potential hung parliament and speculation that Britain’s asset-buying scheme could be revived knocked the pound lower.

The rupee was higher by 20 paisa against the US currency for buying and selling at 85.20 and 85.40 in open market. The dollar touched a two month low against the yen in Asia on Wednesday due to selling by Japanese exporters, falling long-term U.S. interest rates, and expectations for weak U.S. jobs data.

During Asian trading hours, the dollar fell to Y88.47 on EBS, the lowest since Y88.32 on Dec. 14. That compares with Y88.75 in New York late Tuesday.

If coming U.S. data are weaker than expected, adding to speculation that the Federal Reserve may not start raising its policy rate as soon as had been expected, U.S. yields could fall further, causing the dollar to decline more against the yen, Inoue said. He tips the dollar to trade in a range of Y83.00 to Y91.00 in the coming days.

However, Pakistan rupee lost 50 paisas againts the euro: buying and selling at 114.85 and Rs 115.35. The euro had hit a two-week high Wednesday against the dollar in a sign that Greece’s stepped-up efforts to cut its gaping budget deficit has helped calm investors fears over a possible debt crisis.

But the reprieve for the common currency may not last: There is no assurance the Greek measures will be fully implemented nor was there any word from Germany or France, the euro zone heavyweights, whether they would offer more than just verbal support to the debt-laden Greeks.

Investors are now waiting to see whether “an actual bailout will happen,” said Jessica Hoversen, fixed-income and foreign-exchange analyst at MF Global in Chicago.

Foreign direct investments in Pakistan declined by 54.6%, past seven months of the fiscal year with investments falling to only $1.18 billion, State Bank of Pakistan confirmed today.

According to State Bank Of Pakistan the FDI flow into the state during July to November period of this fiscal year fell by 54% but when combined with portfolio investment reported a decline was 25.6%.

State Bank in an email stated, “investments have fallen to $1.18 billion from $2.59 billion a year earlier. Global funds bought $290.7 million more Pakistani stocks than they sold in the seven months, compared with net sales of $355.8 million a year ago.”

In Geneva on 19 January 2009 , Global foreign direct investment (FDI) inflows were estimated to fall by 21% in 2008 to an estimated $1.4 trillion, and were estimated to further decline in 2009.

Political instability, terrorist attacks, power, gas and water shortage and weak law order control has led to falling trend in FDI. These are the major reasons due to which the foreign investors are not interested in investing their capital in Pakistan.

Pakistani firms are unable to sign agreement with foreign investors due to the prevailing abysmal law and order situation.

According to economists, “although the global economic meltdown was also a reason of slow growth in FDI, the domestic shocks were major contributors in the declining trend of FDI. November was the third consecutive month in which the country posted decline in foreign direct investment. We were expecting some increase in the FDI during the current fiscal year ahead of positive economic indicators. The ongoing war in the northern areas and suicide attacks in different cities had restricted the foreign buyers from new investment in Pakistan.”

The State Bank of Pakistan (SBP) on has said, “FDI had posted a decline of 52.2 percent during July-November period of current fiscal year. Although, some increase was registered in portfolio investment in the first five months of current fiscal year, FDI still remained on decline.”

FDI reduced to $774 million during July-November of current fiscal year in last fiscal year it was $1.62 billion, depicting a decrease of 846.7 million dollars. Portfolio investment have reached to $311.3 million in July-November of fiscal year 2010. In 2009 it was 162.9 million dollars. The government expects gross domestic product will grow 3.3 percent this fiscal year.

Current global economic recession, and falling profits have caused many companies to cut capital expenditures and reduce FDI. This economic crisis has affected every region with varying geographical impacts. This crisis originated in developed countries and their major effects on the developing world have been indirect up till now which has affected FDI flow.

The share of foreign direct investment, flowing into Pakistan, is negligible when compared to the opportunities and economic fundamentals of the country. The FDI inflow into the country is less than one per cent of its total, made globally. Since 1996, when received highest amount, FDI in Pakistan has been experiencing a declining trend.

According to UNCTAD, “all experienced sharp foreign direct investment declines, except for the Netherlands and China. The overall environment for international investment is slowly improving. As a consequence, it expects global FDI flows will rebound modestly in 2010. The economists say improving conditions will ultimately encourage companies to invest more in foreign countries this year, prompting a stronger recovery in 2011.”

To emerge as a promising nation Pakistan has to provide conductive environment for external economic flows.

Foreign direct investment (FDI) in Pakistan is a major external source to meet obligations of resource gap, human resource development and goal achievement. The FDI has played a vital role in the economic growth of Pakistan.

Due slowing remittences from overseas and weakening of rupee, Pakistan foreign exchange reserves declined to $14.48 billion in the week ending on Feb. 6 from $14.52 billion the previous week, State Bank of Pakistan official was quoted saying today.

Earlier this week State Bank had reported remittances were declining every month since October 2009 and the overseas Pakistanis sent $758.2 million in October, $742 million in November, $698.4 million in December and $667.9 million in Jan, 2010.

Reserves held by the State Bank of Pakistan fell to $10.70 billion from $10.72 billion a week earlier, while those held by commercial banks eased to $3.78 billion from $3.80 billion the previous week.

Pakistan’s foreign reserves hit a record high of $16.5 billion in October 2007 but fell steadily to $6.6 billion by November 2008, largely because of a soaring import bill.

An International Monetary Fund emergency loan package of $7.6 billion agreed in November 2008 helped avert a balance of payments crisis and shore up reserves.

The IMF increased the loan to $11.3 billion in July and the central bank received a fourth tranche of $1.2 billion on Dec. 28.

According to an article in Dollars Magazine, gap in the price of dollar between open market and the inter-bank has widened during this period and is still expanding despite the efforts made by the State Bank to control it.