Pakistan: IMF Successful Review Strengthens Case For Strong Rebound – OpEd
The IMF Executive Board completed the first review of Pakistan’s economic reform program supported by the EFF. This would allow for an immediate disbursement of US$1 billion (SDR 760 million), bringing total disbursement under the arrangement to US$2.1 billion (SDR1.52 billion).
Besides, the IMF Executive Board approved an additional arrangement under the Resilience and Sustainability Facility (RSF), with access of US$1.4 billion (SDR1 billion). Moving forward, policy priorities will include advancing reforms to strengthen competition, raise productivity and competitiveness, reform SOEs, improve public service provision and energy sector viability, and build climate resilience.
IMF acknowledges that Pakistan’s policy efforts under the EFF have delivered significant progress in stabilizing the economy and rebuilding confidence despite challenging global environment.
Fiscal performance remained strong with a primary surplus on track to end full year at 2.1% of GDP. Inflation fell to a historic low of 0.3% for Apr’25 while favorable external and internal situations have allowed SBP to cut policy rate by 1100 bps since June 2025.
IMF expects gross reserves to reach US$13.9 billion by June 2025 and continue to build over the medium term.
IMF stresses that monetary policy should remain appropriately tight and data dependent to ensure inflation remained within the SBP’s target range. Meanwhile, exchange rate will remain flexible to weather domestic and international shocks aiding the rebuilding of reserves.
The RSF will help to reduce vulnerabilities to natural disasters and to build economic and climate resilience. This program prioritizes natural disasters, make the use of scarce water resources more efficient through better pricing, strengthens coordination of natural disaster response and financing between governments of federal and provincial level and improves the information architecture climate related risks by banks and corporates.
It is believed that Pakistan equities have overreacted to the ongoing geopolitical tensions. In our view, the development of nuclear capabilities has substantially lowered the risk of a full-scale conflict. This trend has been evident in previous episodes of escalation since both countries achieved nuclear deterrence. Historically, during such periods, the market has declined by a max of 8%, whereas this time it corrected by 13% before recovering 3%. Moreover, the market has delivered an average return of +6% (+8% excluding the 2019 Balakot incident). In the 3-month following de-escalation, KSE100 has typically posted average gains of +5%, and +17% from the troughs during heightened tensions.
Analysts anticipate a market rebound as de-escalation unfolds, underpinned by improving macroeconomic conditions, supporting the case for the KSE-100 to reach ourDec’25 index target of 165,215, aided by single-digit interest rates. We maintain our
‘Overweight’ stance on Banks, E&Ps, Fertilizers, Cement, OMCs, Autos, Textiles, and Technology sectors, which are poised to benefit from monetary easing, structural reforms, and reciprocal tariff measures.
