Stocks wobble as Pakistan-IMF talks on tenterhooks thumbnail

Stocks wobble as Pakistan-IMF talks on tenterhooks

On Monday, the first trading session of the week at the Pakistan Stock Exchange (PSX) witnessed a mixed trend as investors reacted to reports of a deadlock in the talks between the International Monetary Fund (IMF) and Pakistan.

The market opened at 44,821 points and the benchmark KSE-100 index instantly shed 329 points at the beginning of the session. At one point the KSE-100 index dropped 369 points and declined to 44,452 points, its lowest value during the session.

During trading, the market kept recovering and losing points and rose to its highest value of 44,984 points, a gain of 162 points from the open of trade.

Experts are linking this mixed trend to speculations that talks between Pakistan and the IMF to resume the $6 billion Extended Fund Facility (EFF) have been inconclusive.

Analyst Raza Jafri said the initial fall of 300 points in the KSE-100 index was due to the reaction of investors to the news that Pakistan-IMF talks have failed.

“The stock market will recover as Pakistan is fulfilling all the conditions laid out by IMF,” said Raza.

“The government has increased [baseline] power tariff by 1.39 per unit and petrol prices by 10.49 per liter, so there is no factor left that can cause the index to decline.”

On October 8, the IMF asked Pakistan to increase electricity tariffs by Rs1.4 per unit to curb the surge in circular debt. The fund asked Pakistan for more steps to increase income tax, sales tax, and regulatory duties collection.

IMF has also asked the government to abolish or significantly reduce all kinds of subsidies, according to officials.

‘No truth in news of breakdown in talks’

Advisor to Prime Minister on Finance and Revenue Shaukat Tarin has strongly denied the news that the talks between Pakistan and the Fund have broken down.

“The perception which is being given in the country is totally false and the nation should not lose hope,” he said from New York, where he is leading Pakistan’s delegation in talks with IMF.

Shaukat Tarin said the meeting with the IMF Managing Director Kristalina Georgieva was very productive. “Bankers always ask to do more, but we can’t cross our ‘red line,’” he said.

Talks between Pakistan and the IMF

By the end of last week, the talks between Pakistan and the IMF failed to make headway, leaving the sixth review of the IMF programme for Pakistan inconclusive.

However, room for discussions still exists and the round of talks could be extended to next week as the Pakistani delegation is expected to prolong its stay in Washington, DC.

These are the second round of talks that began on October 4 and were scheduled to end on October 15. The first round of the sixth review was held in June and did not end conclusively.

If the sixth review concludes successfully, Pakistan will receive the next tranche of $1b under the program. It will bring the total borrowing from the Fund to $3b.

The $6b bailout package

The talks between Pakistan and the IMF are part of the sixth review of the Extended Fund Facility (EFF) under which Pakistan will receive $6 billion over 39 months.

In 2019, Pakistan signed the EFF or bailout program with the IMF to avert a sovereign default because of a balance of payment crisis.

This $6b bailout package comes with certain conditions.

These conditions include reforms in the energy sector, broadening the tax net, market-based exchange rates and restructuring of government-owned companies that are in loss.

During these reviews, which take place every quarter, Pakistan’s performance on these reforms is reviewed by the Fund. Subject to satisfactory performance, the IMF releases more funds.

The last tranche Pakistan received under EFF was of $500m in March 2021, when the combined second through fifth reviews of the EFF were completed.

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