Ariba Shahid
KARACHI (Reuters) – Pakistan’s main stock index rose 1.44 percent to a record high on Monday after the International Monetary Fund (IMF) and Pakistan reached a staff-level agreement (SLA) for a $7 billion, 37-month loan programme.
The agreement marks the end of negotiations that began in May after Islamabad completed a short-term $3 billion program that helped stabilize the economy and avoid a sovereign debt default, and set strict revenue targets for its annual budget to win IMF approval.
Benchmark stock indexes have nearly doubled since Pakistan signed the last SLA on a $3 billion standby agreement and are up more than 10 percent since Pakistan presented its annual budget.
“The $7 billion was pretty much expected. This is a short week with two days off so I think the market will celebrate this SLA,” said Adnan Sheikh, vice president of research at Pak Kuwait Investment Company.
“Markets have become accustomed to IMF agreements being highly politicized news events and the IMF asking Pakistan to do more. This time it was an implicit agreement between the government and IMF officials,” Sheikh said.
He added that despite the inflation spike due to budget measures, markets are expecting further interest rate cuts from the central bank, leading to inflows of $2 billion to $3 billion this month.
The IMF said the SLA agreement is subject to approval by its Executive Board and timely confirmation of necessary financial guarantees from Pakistan’s development and bilateral partners.
This includes rolling over and disbursing loans from Pakistan’s longtime allies Saudi Arabia, the United Arab Emirates and China.
The new rescue package aims to consolidate stability and inclusive growth in the crisis-hit South Asian country, the IMF said in a statement.
Pakistan has suffered from boom-and-bust economic cycles for decades, has received 22 IMF bailouts since 1958, and is currently the IMF’s fifth-largest debtor, with debts of $6.28 billion as of July 11, according to IMF data.
