KARACHI: Pakistan’s stocks and currency markets on Wednesday reacted positively to Islamabad’s staff-level agreement (SLA) with the International Monetary Fund (IMF), with financial analysts noting that the agreement has eased market sentiments.
The IMF announced on Tuesday it had reached a staff-level agreement on the first review under Pakistan’s Extended Fund Facility (EFF) and on a new arrangement under the Resilience and Sustainability Facility (RSF).
Subject to approval from the IMF’s Executive Board, the SLA will ensure “Pakistan will have access to about $1.0 billion (SDR 760 million) under the EFF, bringing total disbursements under the program to about $2.0 billion,” the global lender said.
The benchmark KSE-100 Index at the Pakistan Stock Exchange (PSX) rallied to an intraday high of 118,220 points on Wednesday, gaining 1.4 percent or 1,588 points from the previous close. The stocks closed at 117,772 points with a 1 percent total increase.
“Definitely, the IMF agreement on Pakistan’s first review and climate financing was a major trigger for the market,” Sana Tawfik, the head of research at Arif Habib Ltd. brokerage company, told Arab News.
The current IMF review is critical for debt-ridden Pakistan, which has been grappling with a balance of payment crisis and has so far recorded a $691 million surplus this year in eight months till February, compared with its $1.7 billion deficit a year earlier.
Pakistan is carrying out IMF-backed structural reforms and expects to expand its economy by 3.6 percent this fiscal year.
“We are committed to structural reforms for sustainable long-term growth and prosperity,” Pakistan’s finance adviser Khurram Schehzad told Arab News.
Pakistan’s stock index rose 89 percent to 78,445 points in FY24, according to data from the Pakistan Stock Exchange.
Tawfik said she expected the index to increase to a record 123,000 points by June this year, once Pakistan receives the IMF’s first tranche under review.
“The overall market sentiments are IMF-driven,” Tawfik noted.
STABLE RUPEE OUTLOOK
Pakistan’s national currency also appreciated on Wednesday, inching 0.1 percent up to close at Rs280.2 against the US dollar in the interbank market.
After depreciating about 0.7 percent this year since July, the rupee has stabilized in the range of Rs280-281 against the dollar.
“The rupee would have taken a hit had this agreement not been made,” Owais ul Haq, a foreign exchange dealer at Arif Habib Ltd., told Arab News.
Haq said he expected the rupee to remain stable at the Rs280-281 mark, adding that anything below this rate would hurt exporters.
A healthy inflow of remittances stabilizes the supply of dollars in the country, helping the rupee stay stable against the greenback.
Pakistan expects to receive more than $35 billion in remittances this year through June, as overseas Pakistan remitted a record $1.3 billion in February, primarily due to “seasonal factors” such as Ramadan and Eid.
“I see a stable outlook for the rupee going forward,” Haq said.
Muhammad Zafar Paracha, secretary general at the Exchange Companies Association of Pakistan, agreed the IMF agreement would help the rupee stay stable against the dollar.
“The investors were feeling a bit jittery, but this IMF agreement has eased market sentiments,” he said.
“The rupee has shown some appreciation in the interbank and open market and will strengthen more in the days to come,” he added.
Addressing the federal cabinet on Wednesday, Prime Minister Shehbaz Sharif said Pakistan’s agreement with the IMF would help it ensure long-term economic stability.
Sharif noted that Pakistan was able to increase its tax-to-GDP ratio to 10.6 percent, exceeding the IMF’s target of 10.2 percent.
“This is the highest tax collection ratio in the last four years,” he said.
The prime minister said that the IMF required his government to collect Rs12.9 trillion in taxes this year but then agreed to revise its target to Rs12.1 trillion rupees.
Pakistani authorities fixed the tax collection target to Rs12.33 trillion and were able to increase collection by 26 percent, he said, describing it as a “quantum jump.”
