Pakistan’s Stock Index Reaches Record High After IMF Bailout

By Gibran Naiyyar Peshimam and Asif Shahzad
ISLAMABAD (Reuters) – Pakistan’s benchmark share index reached a lifetime high in opening trade on Thursday, following the International Monetary Fund’s approval of a $7 billion bailout for the ailing economy.

The IMF announced that the new program will necessitate “sound policies and reforms” to enhance macroeconomic stability and tackle structural challenges, along with “continued strong financial support from Pakistan’s development and bilateral partners”.

An immediate disbursement of about $1 billion is set to take place, as indicated by the IMF.

Pakistan’s stock benchmark index soared to a record high of 82,905.73 points in early trade but later reversed those gains, closing 0.7% lower at 81,657.

Junior Finance Minister Ali Pervaiz Malik mentioned on local Geo News TV that difficult decisions are essential if Pakistan intends to conclude its association with the IMF.

Prime Minister Shehbaz Sharif expressed gratitude to IMF Managing Director Kristalina Georgieva, noting that Pakistan will persist with tough economic reforms, as he shared with reporters during the United Nations General Assembly in New York on Wednesday.

Georgieva congratulated Pakistan on its advancement with “home-defined” reforms and reported that the economy is on a sound path, with growth increasing and inflation decreasing.

Islamabad has been working on implementing strict conditions to secure the 37-month loan program that was agreed upon in July. One condition was to obtain additional external financing, a task that the country has found challenging.

Local media reported that Islamabad secured its most expensive commercial loan for $600 million at 11% interest in a last-ditch effort to bridge the financing gap and gain board approval. However, an IMF spokesperson stated that the lender was not informed of such a loan and that it was unnecessary for the program’s financing assurances.

Reforms and Challenges

The IMF’s statement noted that Pakistan has made significant strides toward restoring economic stability through consistent policy implementation under the 2023-24 standby arrangement. It was reported that growth had rebounded to 2.4%, and inflation had significantly decreased, now in single digits, due to appropriately tight fiscal and monetary policies.

A controlled current account and stable foreign exchange market conditions have enabled the rebuilding of reserve buffers, allowing the State Bank of Pakistan to lower the policy rate by 450 basis points since June.

Despite these advancements, the IMF warned that Pakistan’s vulnerabilities and structural challenges remain significant. The tax base is still seen as too narrow, and without a focused adjustment and reform effort, the country risks falling further behind its peers.

Pakistan has faced cyclical economic difficulties for decades, resulting in over 20 IMF bailouts since 1958. As of July 11, the South Asian nation is the fifth-largest debtor to the IMF, owing $6.28 billion, according to the lender’s data.