Pakistan bourse likely to remain volatile

KARACHI: The Pakistan stocks rallied during the week, as some progress was made in completing the prior actions and commitments to the International Monetary Fund (IMF) programme, which will result in completion of the ninth review and release of the much-needed $1.2 billion tranche, analysts said.

However selling initiated; following the taxation measures taken through
the Rs170 billion Finance (Supplementary) Bill 2023 and the gas tariffs
hiked by up to 124 per cent to prevent further accumulation of the gas circular debt.

The outgoing week saw the KSE-100 Index dip 623 points to settle at 41,119 points. The All-share average traded volume during the week declined 46 per cent to 154 million shares/day, compared with 284 million shares in the previous week.

An analyst at KASB Securities said the majority of the selling was witnessed in the E&P space, despite positive developments via a gas price hike.

“We think the market was anticipating additional updates regarding the clearance of the sector’s overdue arrears through a cash injection.”

With the additional taxes and gas tariff hike, the incumbent government has prioritised the IMF programme’s revival to ensure adequate reserves building.

Market grapevine also suggests an emergent Monetary Policy Committee (MPC) meeting, through which the interest rates may go up 150 to 200bps.

The recent Pakistan Investment Bond (PIB) auction, which was fully
rejected, further strengthens the view. Even the secondary market yields witnessed an uptick of nearly 100bps over the week.

Moreover, Fitch downgraded Pakistan IDR to ‘CCC-’; forex reserves held by the SBP increased $276 million to $3.19 billion during the week ended February 10, 2023 and the rupee appreciated 2.46 per cent to Rs262.8/dollar during the week.

The analysts believe the additional taxes through the Supplementary Finance Bill will have negative repercussions on the already skyrocketing prices of common goods and will elevate inflation.

However, this move takes Pakistan one step closer to the lingering staff-level agreement with the IMF. To note, the government has taken a series of decisions in the last 30 days to get the IMF nod and this move is part of those decisions.

To recall, the IMF’s key demands were rationalisation of the energy tariffs along with the market-based exchange rate mechanism.

The control on the exchange rate has been removed towards the end of January 2023 and the government has also increased the gas rates for residential and non-residential consumers worth 8 to 112 per cent.

As per the news flows, the government is trying to get the IMF on board in the next couple of days, as depleting forex reserves and the upcoming repayments on the external fronts have pushed the government in the corner. The IMF inflows will also unlock the flows from friendly countries and other multilateral institutions.

Going forward, the analysts expect the market to remain volatile until the successful conclusion of the IMF’s ninth review.