Shares plummet 523 points on IMF delay, forex crisis

Shares at the Pakistan Stock Exchange (PSX) fell sharply for a second day on Wednesday, with analysts citing delays in the completion of the International Monetary Fund’s (IMF) ninth review, the foreign exchange crisis and exchange rate instability.

The benchmark KSE-100 index lost 523.48 points, or 1.32 per cent, to close at 39,279.43 points. It reached an intraday low of 775.4 points, or 1.95pc, at 2:55pm.

Head of Equity at Intermarket Securities Raza Jafri said the market’s downward trend was because of a lack of tangible progress regarding the balance of payments, including the delay in the completion of the IMF review and expected inflows from Saudi Arabia.

“The government has rightly come out with assuring statements that the IMF programme will be complied with, but the sentiment is low and investors want to see words backed by action,” he said.

Arif Habib Corporation’s Ahsan Mehanti said stocks fell because of the Pakistani rupee’s instability and the impact of the forex crisis on industrialists.

According to financial and data analytics portal Mettis Global, the local currency has fallen by Rs19.06 or 8.52pc against the dollar since the start of this fiscal year.

Meanwhile, dollars have disappeared from the open market, while a crisis in the interbank market has led to the stoppage of foreign payments. The country is unable to clear the dues owed to airlines or make payments for imported goods waiting at ports. Opening letters of credit (LCs) has become a challenge with several companies temporarily stopping production because of a shortage of imported raw materials.

“Political uncertainty, projections over higher inflation in December and concerns over IMF EFF (Extended Fund Facility) review delays because of rifts over government’s petroleum levies and budgeted flood losses played a catalyst role in the bearish [trend],” Mehanti added.

First National Equities Limited Director Amir Shehzad said the market fell for the last two days because of the IMF delay and the prevailing political situation. Only the oil and gas sector was stable because of the government’s steps to address circular debt, otherwise, the index would have lost more points, he said.

Pakistan entered a $6 billion IMF programme in 2019, which was increased to $7bn earlier this year. The programme’s ninth review, which would release $1.18bn, is currently pending. It had earlier been put off for two months due to the PML-N-led government’s unwillingness to accept certain conditions placed before it by the Fund, and the disagreements have yet to be resolved.

A day earlier, Prime Minister Shehbaz Sharif said the government had “no other option” but to implement the International Monetary Fund (IMF) programme, calling it a “painful reality”. Finance Minister Ishaq Dar also said today that Pakistan would fufil its commitments to the IMF.

It is essential for Pakistan to clear the ninth review for the release of $1.18bn, given its low foreign exchange reserves which are barely enough to cover a month’s imports.

The State Bank of Pakistan’s foreign exchange reserves have declined by $11bn during a year. In Dec 2021, the central bank’s reserves were $17.686bn which now stand at $6.7bn as of Dec 9.

Pakistan has to repay at least $13bn in the remaining part of the financial year. But it is unclear when it will receive more inflows from bilateral and multilateral institutions, giving rise to default fears.