Pakistan’s currency and equity markets celebrate Saudi financial assistance with bullish sentiment

KARACHI: Pakistan’s currency and equity markets showed a bullish trend on Thursday and recovered some of their losses after Saudi Arabia announced a generous financial package of $4.2 billion, said traders and analysts.
The Saudi government offered the package during Prime Minister Imran Khan’s three-day visit to the kingdom, giving a much-needed impetus to the country’s stock and forex markets.
The Saudi Fund for Development announced on Tuesday that a royal directive had been issued to deposit an amount of $3 billion in Pakistan’s central bank to support the country’s foreign currency reserves and help it overcome the impact of the coronavirus pandemic.
It also mentioned another directive to finance the trade of oil with an amount of $1.2 billion for a year.
“Stocks closed higher and the rupee recovered against the backdrop of Saudi inflows and the finance minister’s assurance over the revival of the International Monetary Fund [IMF] program,” Ahsan Mehanti, chief executive of Arif Habib Corporation, told Arab News. “The Saudi government’s package and deferred oil payment facility of $4.2 billion played a catalyst role in the bullish close.”
Saudi Arabia had also supported Pakistan back in 2019 with $3 billion of deposit and $1.2 billion of deferred oil payment facility.
The kingdom’s recent financial assistance has come at a time when the country is negotiating with the IMF to revive a $6 billion loan program. The talks are expected to pave the way for the sixth review of the Extended Fund Facility, enabling Pakistan to draw $1 billion from the fund.
Pakistani officials and experts said there was no link between the IMF talks and the Saudi financial package, though they maintained the latter had already impacted the country’s foreign exchange reserves and stock market positively.
“There is no link between the Saudi package and the Fund’s sixth review,” Shaukat Tarin, Pakistan’s finance chief, categorically said at a press conference on Wednesday while informing that the IMF talks were close to completion.
Financial experts also said the Saudi package would not impact the IMF program which called for greater monetary discipline.
“The Saudi package will support Pakistan’s falling foreign exchange reserves that are down from $20 billion to $17 billion,” Muhammad Sohail, chief executive officer of Topline Securities, told Arab New. “The country’s national currency will also stabilize after falling more than 10 percent in the last few weeks.”
On Thursday, the Pakistani rupee closed at Rs172.26 against the US dollar after touching historic low of Rs175.27 on Tuesday.
The rupee also appreciated in the open market where it was trading at Rs172.73 on Thursday.
“The announcement of the Saudi financial support has strengthened the rupee,” Zafar Parachi, general secretary of the Exchange Companies Association of Pakistan, commented. “With the Saudi support package and a positive outcome of the IMF talks, the rupee may appreciate to Rs160, if the government does not devalue the currency.”
The equity market of the country also celebrated the Saudi package, with the benchmark KSE100 index recovering 762 points in the last two trading sessions.
“The Saudi support is timely and has exerted a positive impact on the stock market,” Abdul Azeem, head of research at Spectrum Securities, told Arab News. “The $1.2 billion of deferred oil payment facility will also provide some breathing space to the government amid inflating energy import bill.”