Certain markets for the approval of the IMF tranche

KARACHI:

Pakistan’s financial markets are expressing unwavering confidence in the impending approval of the second tranche, worth $700 million, by the International Monetary Fund’s executive board. The board is scheduled to meet on Thursday (January 11).

After approval, the next elected government is expected to secure a larger and longer-term loan program from the IMF to stimulate economic growth, liberalize imports and create key job opportunities. This follows the completion of the current nine-month Stand-By Arrangement (SBA) of $3 billion in March 2024.

Speaking to Express Tribune, Managing Director of Arif Habib Limited, Shahid Ali Habib said, “The caretaker government has met almost all the benchmark commitments under the current IMF loan program, suggesting that the IMF Executive Board give its nod for the release of the next installment.”

He emphasized the confidence of the domestic capital and financial markets to receive the next tranche and obtain the subsequent loan program. The remarkable market performance, with the Pakistan Stock Exchange (PSX) emerging as the best performing market in the second half of 2023, reflects this optimism. The PSX recorded a total return of 55%, lifting the benchmark to over 64,000 points in December, compared with around 40,000 before the start of the current IMF program in June 2023.

Reading PSX bounces sharply on IMF loan hopes

Additionally, the Pakistani currency has appreciated cumulatively by 1.57%, or Rs 4.42, over the past six weeks, touching a 10-week high of Rs 281.22/$ on Tuesday.

Pakistan achieved IMF staff-level agreement on the completion of the first review of the domestic economy under the ongoing program in November 2023. Habib said, “The IMF is pleased with the caretaker government’s performance in the review.”

Expectations are high for Pakistan to secure another IMF loan program, potentially worth $6-8 billion and lasting at least three years. This would allow imports to be liberalized, boosting productivity, especially in the large-scale manufacturing sector.

The new IMF lending program is expected to support the economy, allowing a slight widening of the current account deficit to sustainable levels. This, in turn, will boost economic growth, recovery, sustainability and the creation of much-needed employment opportunities over the next three years.

The program will also unlock additional financing from multilateral and bilateral creditors, including the World Bank, the Asian Development Bank and the Asian Infrastructure Investment Bank.

With optimism surrounding the next IMF loan program, analysts predict continued excellent performance in capital and financial markets throughout 2024. Habib said, “The new program will make the rupee-dollar rate sustainable in the long run. and will help PSX reach over 80,000 units by the end of December 2024.”

The AHL CEO also mentioned that the IMF may encourage the next civilian government to speed up the privatization of state-owned entities. While the caretaker government is currently working on privatization, time constraints may prevent the completion of the tasks.

The IMF is expected to emphasize continued energy reforms, resolving economic slippages and structural reforms to boost tax collection, supporting an improved tax-to-GDP ratio by taxing the wholesale, retail, agriculture and real estate sectors. At present, a significant part of taxes is collected from wage earners and imports.

After completing its first economic review in mid-November, the IMF said the staff-level agreement supports the authorities’ commitment to promote fiscal consolidation, accelerate cost-cutting reforms in the energy sector, return to an exchange rate that market-driven , and continue state business and governance reforms to attract investment and support job creation, while strengthening social assistance.

Published in The Express Tribune, January 10^u2024.

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