Pakistan stock market surges 5.8% after $3 billion IMF deal

Pakistan’s benchmark KSE-100 Index kicked off the week on a high note, gaining a solid 5.8 percent during Monday’s trading session. The positive momentum was so strong that trading had to be briefly halted after the index hit its upper circuit limit.

Pakistan recently receiving a much-needed $3 billion short-term financial package from the International Monetary Fund played a big role in Monday’s stock rally. 

This funding comes as a huge relief for Pakistan, which has been teetering on the brink of default. The cash-strapped country has been grappling with sky-high inflation and dangerously low foreign exchange reserves. Without this bailout, the country could have potentially defaulted on its debt.

Nevertheless, the economy is far from safe. The new fiscal, which began on July 1, will be difficult for Pakistan The country has $23 billion worth of external debt obligation that needs to be re-paid by June 2024. This is six times the total foreign exchange reserves Pakistan has currently. 

“This IMF arrangement provides some comfort to investors over Pakistan’s ability to overcome short term external repayments,” Bloomberg quoted Ruchir Desai, fund manager at Asia Frontier Capital Ltd, as saying. Desai added that the Pakistani stock market would do “pretty well” in the next few weeks. 

Prime Minister Shehbaz Sharif too expressed optimism after sealing the deal over the weekend. He stated that the loan agreement will put Pakistan on the “path of sustainable economic growth”. 

Interestingly, inexpensive valuations, owing to the negative headlines garnered by the country over the past one year, are also helping the stock market. As per Bloomberg, the KSE-100 Index of the Karachi Stock Exchange has become the world’s cheapest equity benchmark.

The positive impact of the IMF bailout could also be reflected in Pakistan’s sovereign dollar bonds, which are trading higher following the announcement. The 2024 bond, in particular, has seen significant gains, up by over 8 cents at just above 70 cents on the dollar.