New IMF funding for Pakistan|Highlights

By Omed Hajjana

Pakistan has entered into a new US$3bn IMF short-term program, Standby Arrangement (SBA), which will be for 9 months. This is new IMF funding for Pakistan to avoid default.

Pakistan has entered into such IMF SBA in the past also in 2008 and 2000.

This new program is far better than our expectations.

There were a lot of uncertainties on what will happen after June 2023 as there will be a caretaker government and then a new government coming to power.Saudi Arabia confirms rollover of $3b deposit for one year

Now, this funding of US$3bn for 9 months will definitely help restore some investor confidence.

Saudi, UAE, and other bilateral and multiaxial funding will now come in after this new deal helping to deplete FX reserves.

In fact, there will be some discipline until Dec 2023, which could not be there due to upcoming elections (where the gov takes popular measures) if Pakistan had successfully or unsuccessfully completed this EFF. It’s a blessing in disguise.

Now, the caretaker government will have a road map on what to do for economic stabilization.

Interest rates may remain high as IMF says SBP to remain proactive in line with inflationary pressure.

PKR may gain in the short run both in interbank and open markets. But we don’t expect a major and sustainable recovery.

No more interference in the currency market now, according to IMF, as it says SBP is committed to full market determination of exchange rate.

Power sector reforms may be introduced, including a further increase in tariffs.

The newly elected government, likely by Nov/Dec, will have some time to evaluate the economic situation and decide on the way forward (bigger IMF loan with or without debt restructuring/Reprofiling).

IMF has not mentioned in the press release the sustainability or unsustainability of Pakistan’s debt and the risk of external debt repayment.

Pakistan Eurobonds rally will continue especially in short-duration bonds. Pakistan 2024 Bond is already up from a low of 38 cents to around 62 cents yesterday.

Local stocks that trade at unbelievably low PE of less than 3x may rally on this new deal. The benchmark index that is hovering in the band of 40k to 42k may break this level and go near 44k,” Topline Research said.