IMF Bailout Optimism Spurs Rally in Pakistan Stocks, Rupee
The currency advanced as much as 2%, while stocks also jumped after Pakistan’s government increased fuel prices.
(Bloomberg) -- Pakistan’s assets rallied on optimism the beleaguered nation may succeed in securing a critical financing from the International Monetary Fund.
Stocks advanced as much as 2.4% on Friday while the currency jumped the most in seven weeks after Pakistan’s government increased fuel prices to meet a key IMF condition for reviving a bailout program. The nation’s dollar-denominated bonds posted record one-day gains.
The resumption of the bailout may provide a much-needed relief to keep the South Asian nation’s economy afloat and avert a default. The stocks have tumbled and the Pakistani rupee dropped 9% in the past month, the worst performer among Asian nations, according to data compiled by Bloomberg. The country’s dollar bonds dropped to a record low last week.
“It was the decision that was needed,” and “brings Pakistan quite close to unlocking funds from IMF,” said Ali Wahab, head of debt capital markets at Sharjah Islamic Bank. “The country needs stability and the removal of subsidies,” in a phased manner are needed, he said.
The KSE-100 Index ended the day up 0.8% while the rupee closed about 1.5% stronger at 199.2 per greenback. Dollar bonds maturing in December were quoted 2.4 cents higher at 94.1 cents on the dollar, the biggest single-day jump since they were issued in 2017, according to Bloomberg data. Notes due 2024 and 2031 also gained the most since their offerings.
Pakistan’s decision to raise fuel prices comes a day after the two sides ended week-long talks without reaching an agreement to revive the stalled loan. Unlocking those funds would be critical to meeting $6.4 billion in dollar debt due over the next three years and avoiding a sovereign default.
The loan program announced in 2019 was suspended earlier this year after ousted prime minister Imran Khan reduced fuel prices and then froze them for four months, a move that cost the government $600 million a month in subsidies. Premier Sharif deferred price increase three times since coming to power on April 11, causing a panic in markets over whether the government will be able to resume the IMF program.
The fund’s team emphasized the urgency for “concrete policy actions,” including the removal of fuel and energy subsidies, and for the 2023 fiscal year budget to meet program objectives, the IMF said in a statement on May 25.
The successful resumption of the program will unlock the remaining $3 billion from the loan program. Pakistan has also requested the IMF to extend its loan program for a year and increase the loan size by a further $2 billion.
Meanwhile, political uncertainty looms large in Pakistan as ousted premier Imran Khan on Thursday demanded the government announce elections in six days that ends next week or else he will return to Islamabad with two million people for a sit-in.
“Investors will keep an eye on Khan’s six-day ultimatum,” said Adnan Khan, head of international sales at Intermarket Securities Ltd. in Karachi. “This may curb some enthusiasm later on and keep the market and rupee in check.”
(Updates asset prices throughout.)
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