Tough IMF conditions push Pakistan stocks down 816 points

In this Feb 8, 2016 file photo, a security guard sits in front of a wall with signs and slogans at the operation building at the Pakistan Steel Mills (PSM) on the outskirts of Karachi. The Pakistan Stock Exchange (PSX) plunged a massive 816 points on Monday May 13,2019 due to concerns of tough conditions attached with the IMF bailout package. (Reuters/File)
Updated 14 May 2019

Tough IMF conditions push Pakistan stocks down 816 points

  • The Pakistan Stock Exchange plunged on Monday to lose 2.3% during intra-day trading
  • Defense and development are only two areas where there is fiscal space for budget cuts, economists say

KARACHI: The Pakistan stock exchange (PSX) plunged a massive 816 points on Monday — a day after the government announced a $6 billion International Monetary Fund (IMF) package — with the benchmark KSE 100 losing 2.3 percent during intra-day trading and cementing fears that investor sentiments remain bleakly uncertain.
For a few minutes when trading opened, all seemed well with upwards activity and a move into the green zone by more than 500 points before the PSX experienced one of the bourse’s worst bearish spells, pushing the index to close below 34,000 points.
“The market opened on a buoyant note before panic-prone investors started to jettison shares,” said Muhammad Faizan, an analyst and head of foreign institutional sales, Next Capital Limited, a brokerage. He said this occurred due to concerns of tough conditions attached with the IMF bailout package, leading to heavy sell-offs in the market that pushed the index to close at 33,900 points.
Pakistani authorities and the IMF team on Sunday reached a staff level agreement on economic policies to be supported by a three-year agreement for about $6 billion which is subject to IMF management approval and to the timely implementation of the Fund’s conditions.
According to Ahsan Mehanti, Chief Executive at Arif Habib Corporation, a capital market company, “Expected increase in taxes and utility prices, sharp fall in expected growth rate, projections for 6.5-7 percent fiscal deficit to GDP, and expected tightening in SBP policy rates played a catalyst role in bearish close.”
With inflation climbing to over 8 percent, the rupee losing a third of its value over the past year, and foreign exchange reserves barely enough to cover two months of exports, Pakistan was forced to turn to the IMF for its 13th bailout package last year.
Outlining critical steps Pakistan needed to take for fiscal strategy, the IMF said the upcoming budget, to be announced this month, would aim for a primary deficit of 0.6 percent of GDP supported by tax policy revenue mobilization measures to eliminate exemptions, curtail special treatments, and improve tax administration.
Economists say that impact of the IMF bailout program and the promises made to secure the money by Pakistani authorities will be reflected in this month’s budget.
“The most prominent thing in the budget would be the imposition of around Rs. 700 billion in new taxes,” according to Dr. Hafeez Pasha, former finance minister, who spoke to Arab News on Monday. “The major portion of taxes will be through the reduction of exemptions being given on many items including medicine, medical equipment and fertilizers,” he said, and added that a removal of the exemptions would hugely affect ordinary citizens.
The IMF has asked that Pakistan’s deficit be reduced to between 1-1.5 percent of GDP, which will mean a deficit of up to Rs. 750 billion will need to be curtailed.
“The problem is that what we pay in debt servicing will have to continue as there is no space for reduction. The fiscal space is available in your defense and development budgets and the choice is yours,” Pasha said.
Some experts do believe that the agreement will boost the confidence of investors and end the long prevailing uncertainty from nine months of IMF negotiations. Others say the bearish rule at the PSX is here to stay.
“The movement of currency will now be based on demand and supply bases. At the month end when debt payment nears, we will see shocks in the currency market,” Muzzamil Aslam, a senior economist told Arab News and called for the strong role of regulator.
“As per the real effective exchange rate, the Pakistani Rupee is close to its equilibrium, and there is only 2-3 percent room for further devaluation,” he said.
The IMF forecasts Pakistan’s economic growth slowing to 2.9% this fiscal year from 5.2% in 2018, while the central bank has cut its estimate to between 3.5-4%.
“If there arises any demand and supply issue and the central bank is not allowed to intervene, then the market can do anything,” Aslam said. “We could see Rs.10 appreciation or depreciation in a single day.”

British Airways to resume Pakistan flights next week after a decade

Updated 23 May 2019

British Airways to resume Pakistan flights next week after a decade

  • BA halted service to Pakistan in the wake of the 2008 Marriott Hotel bombing in Islamabad
  • BA will begin the London Heathrow-Islamabad service with the Boeing 787 Dreamliner

ISLAMABAD: British Airways will resume flights to Pakistan next week a decade after it suspended operations following a major hotel bombing, becoming the first Western airline to restart flights to the South Asian country.

BA halted service to Pakistan in the wake of the 2008 Marriott Hotel bombing in the capital Islamabad that took place during a period of devastating Islamist militant violence in Pakistan.

Security has since improved, with militant attacks sharply down in the mainly Muslim country of 208 million people, reviving Pakistan as a destination for tourist and investors.

“The final touches are coming together for the airline’s return ahead of the first flight on Sunday June 2,” British Airways said in a statement. It will launch a three-per-week service to London Heathrow, it said.

“We’re on board,” Pakistani Civil Aviation spokeswoman Farah Hussain said about the flights resumption.

BA, which is owned by Spanish-registered IAG, will begin the London Heathrow-Islamabad service with the airline’s newest long-haul aircraft, the Boeing 787 Dreamliner.

At present, only loss-making national carrier Pakistan International Airlines (PIA) flies directly from Pakistan to Britain, but its ageing fleet of planes is a frequent source of complaints by passengers.

Middle Eastern carriers Qatar Airways, Etihad Airways and Emirates have a strong presence in Pakistan and have been eating into PIA’s dwindling market share. Turkish Airlines also lays on a regular service to Pakistan.

Islamabad has been running international advertising campaigns to rejuvenate its tourism sector, which was wiped out by Islamist violence that destabilised the country following the Sept. 11, 2001 attacks in the United States and the U.S.-led war in Afghanistan.

“We hope customers in both the UK and Pakistan will enjoy the classically British service we offer, with thoughtful bespoke touches,” Andrew Brem, Chief Commercial Officer at British Airways, said in BA’s statement.

BA said there will be a halal meal option in every cabin and the airline would also ensure sauces in every meal do not contain alcohol or pork.