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The executive board of the International Monetary Fund (IMF) is all set to meet today (Monday) to reflect onconsideration on the loan plan for Pakistan, whilst authorities of the cash-strapped nation expect the resumption of the month-long stalled $6 billion bailout programme.

Crucial IMF meeting for revival of bailout package today

However, a rally in the nation’s belongings may fizzle out amid escalating political tensions.

Pakistan additionally made a request to the Fund’s Board to increase the Extended Fund Facility (EFF) from $6 billion to $7 billion and jack up the timeframe from September 2022 to June 2023.
A latest letter written by way of KP’s finance minister to federal minister for finance would possibly create an embarrassing situation for Pakistan during the IMF’s Board assembly however legitimate circles are assured that the Board will not take up this issue. However, there is an apprehension that India’s consultant would possibly make efforts to spotlight this difficulty at the meeting to embarrass Pakistan’s representative.

According to Columbia Threadneedle Investments, Tellimer Limited and Natixis SA predictions, Pakistan will win a loan approval from the IMF board when it meets on Monday, “paving the way for the release of $1.2 billion in immediate funds.”

However, amid ongoing political turmoil in the country, it is predicted that the two-day later center of attention will shift to PTI Chairperson Imran Khan’s court listening to as he battles a string of legal troubles.

“I do assume the bulk of the market rally is already in the price,” stated Eng Tat Low, an emerging-market sovereign analyst at Columbia Threadneedle in Singapore. “I count on the subsequent 12 months to be difficult with the frequent elections looming. The chance of worsening political backdrop is genuinely still considerable and elevated, and is a danger that is not likely to dissipate anytime soon.”

It ought to be cited that Pakistan’s dollar bonds have been the top performers in emerging markets in August after Belarus. Meanwhile, the rupee additionally soared above its peers as investors cheer the prospect of IMF funds.

However, the improvement on the political the front can put fragile economic steadiness at danger as supporters of Imran Khan stage protests. “The political uncertainties will persist with speculations on early elections,” stated Junyu Tan, an economist at Natixis in Singapore. “This will pose a fundamental hazard for Pakistani assets.”

Pakistan’s dollar bonds mixed performance highlights the country’s “rocky path ahead”. Notes due in December had been indicated at about ninety four cents on the dollar on Friday from a low of eighty five cents in July, as buyers develop greater assured the debt will be repaid. Meanwhile, bonds due in 2031 have been still quoted at below 60 cents on the dollar in the distressed territory.

Columbia Threadneedle expects the prices of Pakistan bonds to be range-bound in the subsequent 12 months. “The dollar bonds have back nearly 16% to investors this month”, in accordance to a Bloomberg index. Its shares have rallied with the aid of 6%.

According to London-based research firm Tellimer, the Pakistani rupee — which surged 8% this month to 220.52 per US dollar on Friday — will most probable weaken to 240 by way of the end of 2022.

“Pakistan’s government will want to deliver on its reform promises to set its debt and reserves on a sustainable path,” stated Patrick Curran, a senior economist at Tellier. “Any deviation from its reform targets, on the other hand minor, could shatter market confidence and send the rupee lower back into a tailspin.”

Pakistan’s track record with the IMF can be described as “tumultuous”. The former PTI-led authorities secured a bailout programme in 2019 solely to have it stall numerous instances due to Islamabad’s failure to meet some loan conditions.

The Prime Minister Shehbaz Sharif-led authorities will get a big raise with the resumption of the programme as it will assist avoid what would be the 2nd default in Asia this 12 months after Sri Lanka.

Islamabad desires to pay at least $3 billion to provider debt in the first half of of fiscal 2023, in accordance to Bloomberg Economics. With the IMF loan paving the way for greater financing, the State Bank of Pakistan expects foreign-exchange reserves to rise to about $16 billion this fiscal year from $7.8 billion.

Elections have to be held via the 2nd 1/2 of 2023, even though Khan has known as for early polls as he challenges the legitimacy of the government. “Until there is a new civilian government with a clean electoral mandate, it is very tough to see a regular route for financial policy, and consequently a sustained or easy rally,” stated Hasnain Malik, head of EM equity strategy at Tellimer in Dubai.