Pakistan Stock Exchange to Recover 22 Percent Driven by IMF Deal

Published May 11th, 2019 - 06:52 GMT
The country will likely enter IMF programme by June
The country will likely enter IMF programme by June. (Shutterstock)
The country will likely enter IMF programme by June given the ongoing discussions with the IMF team and recent changes in key government positions.

Pakistan Stock Exchange is likely to recover 14% to 22% from the current level driven by an IMF deal which is expected by June-end, a brokerage reported.

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Topline Research said the benchmark KSE 100-share index of the Pakistan Stock Exchange rallied on an average by 37% within one year after the International Monetary Fund’s (IMF) deal based on the last three programmes.

“We attribute the improvement in market sentiment during IMF programme to improved external account situation on receipt of foreign flows and stabilisation on macroeconomic front,” Topline Research said in a report.

“Now based on the assumption that Pakistan will get a new IMF loan soon we are maintaining our index target range of 40,000-45,000, providing total return of 12% to 26% from here.” The index settled at 35,035 points.

The country will likely enter IMF programme by June given the ongoing discussions with the IMF team and recent changes in key government positions.

Topline Research said though the previous finance minister was expecting $6bn to $8bn package, “we think the size of the programme should be bigger ($10bn plus) considering upcoming debt repayments”.

“With IMF’s support, other lending agencies will also feel comfortable to provide funding to Pakistan,” it said.

Once the country enters IMF programme, the World Bank and Asian Development Bank would likely extend their support to the tune of $6bn to $8bn. “We may see major steps towards fiscal, monetary and structural reforms in next few weeks either with or before the budget that is expected to be announced in next few weeks,” it added.

“These may include rupee devaluation/free-float, further hike in interest rates, increase in energy prices, elimination of subsidies, new and more taxes, aggressive privatisation policy among others.” The brokerage said the IMF programme is expected to include key technical benchmarks including net domestic assets and net international reserves targets, which will serve to reduce borrowing from the central bank and increase foreign exchange reserves, respectively.

Topline Research said the government would have to increase focus towards privatisation and restructuring of loss-making state-owned enterprises. “Further, energy sector reforms and resolution of outstanding circular debt will also likely be part of the IMF programme,” it said.

“Tax revenue and budget deficit target will likely be the sticking points in the ongoing IMF negotiations as 10-month tax revenues show shortfall of around Rs345bn (0.9% of GDP) while budget deficit is expected to exceed 7% in FY19 after a gap of five years.”

The brokerage said IMF would demand rupee to be free-floated and “we expect the rupee to settle in the range of Rs160-165 by Dec 2019 given expectations of REER (real effective exchange rate) below 100”.

“Given increased taxation measures to shore up revenues, reduction in subsidies and devaluation, we expect inflation to average in low double digits in FY20,” it added. “We expect the central bank’s policy rates to peak at 12% during 2019.”

© Gulf Times Newspaper 2022

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