By Ariba Shahid
KARACHI (Multibagger) - Pakistan's benchmark share index surged 1.44% on Monday to achieve a new all-time high following the announcement of a staff level agreement (SLA) between the International Monetary Fund (IMF) and Pakistan for a $7 billion, 37-month loan program.
The deal marks the culmination of negotiations that commenced in May after Pakistan successfully completed a short-term $3 billion program, which helped stabilize the economy and prevent a sovereign debt default. The agreement also includes ambitious revenue targets outlined in Pakistan's annual budget, which played a crucial role in securing approval from the IMF.
Since Pakistan's last SLA for the $3 billion standby arrangement, the benchmark share index has nearly doubled, and it has risen over 10% since the presentation of Pakistan's annual budget.
"The $7 billion agreement was largely anticipated. I believe that the markets will react positively to this SLA during this shortened trading week," said Adnan Sheikh, assistant vice president of research at Pak Kuwait Investment Company.
Sheikh noted, "Historically, IMF deals have been highly politicized events with the IMF demanding more from Pakistan. However, this time the agreement was reached quietly between the government and the IMF staff."
He further mentioned that the market is anticipating another interest rate cut by the central bank, despite a slight uptick in inflation due to budgetary measures, and expects inflows of $2-3 billion in the coming month.
The IMF has specified that the SLA agreement is contingent upon approval from its Executive Board and timely confirmation of necessary financing assurances from Pakistan's development and bilateral partners. This includes rollovers or disbursements on loans from Pakistan's key allies such as Saudi Arabia, the United Arab Emirates, and China.
The new bailout aims to solidify stability and foster inclusive growth in Pakistan, a country that has been grappling with cyclical economic challenges for decades. Pakistan has sought IMF assistance 22 times since 1958 and currently stands as the IMF's fifth-largest debtor, with outstanding dues amounting to $6.28 billion as of July 11, according to IMF data.
Analysis:
The recent agreement between Pakistan and the IMF for a $7 billion loan program has injected optimism into the country's financial markets, as evidenced by the record high achieved by the benchmark share index. The infusion of funds is expected to bolster economic stability and pave the way for inclusive growth in Pakistan. Additionally, the market anticipates further positive developments, such as a potential interest rate cut by the central bank and significant inflows of foreign investment. Overall, this agreement signifies a step towards financial resilience and prosperity for Pakistan, marking a significant milestone in its ongoing economic journey.