On October 8th the IMF put out a press release stating that the IMF and the Government of Pakistan had achieved a Staff Level agreement giving the country access to $1.21bn, with $1bn from the 4th review of the EFF and $210mn from the third review of the RSF. The release implored the government to maintain a strong fiscal policy that puts the debt servicing on a downward path. It noted that the government is making progress on improving budget management, while also noting relative improvements in spending, relative to GDP, on health and education. The most important point was addressed last that the country needs to develop energy sector viability and limit the losses that are ubiquitous and long standing.

However, the recent staff level agreement announcement did not result in any uptick in the equity market. That partly makes sense as the government has reached its halfway point which usually marks political uncertainty – which has been quite present in the politics of Pakistan for this year – the elections in Kashmir, the increased terrorism cases on the Western Front of the country, pushback to creation of more administrative units, and the ever-hanging noose that is Imran Khan.

1

Already Priced In

The injections are already priced in – the government of Pakistan has been closely aligned with the US government for the past 3 years and it has been considered unlikely that there will be hiccups in the disbursement schedule or problems with reviews. Additionally, the government has been able to keep the IMF board happy about its commitments which means that investors have prized in the information about the reviews.

2

Economy Remains Exposed

Regardless of the IMF EFF and RSF injections, the economy is still in a precarious state with its dependence on Gulf countries lines of credits for Oil, a contracting agricultural economy, persistently high inflation, and getting deeply embedded in Gulf Geopolitics via Defense Pacts. All of the above factors add uncertainty to the minds of investors, which is not overcome by the IMF injections.

3

Failure to Deliver on Plans

Investors expected when the EFF was announced coupled with SIFC initiatives, rekindling of CPEC, and aggressive courting by the government to attract foreign investment in mining and energy initiatives that there would be increased investment from foreign sources but that has not materialized and we have actually seen a reversal of the trend as firms have exited the Pakistan market. Investors are wary now that the IMF injections are more akin to keeping the country’s economic mechanisms running without really transforming the economy to attract more investment.

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All information disseminated on this site is sourced from public records and sources which MesoQuill believes to be reliable and accurate, however the firm makes no guarantees related to the information and data's reliability and accuracy. The content on the website is meant for education, illustrative, and knowledge purposes and should not be taken directly as investment advice.