Investors are increasingly confident that Pakistan will secure an International Monetary Fund (IMF) bailout later this month and avoid a default.
A report published in Bloomberg said that the Pakistani rupee, bonds, and stocks are rallying as confidence grows that the cash-strapped country is finally nearing the elusive IMF bailout.
Dollar bonds that were indicated at a low of 85 cents last month were indicated at 95 cents on Tuesday. The rupee closed in green against the dollar for the eleventh consecutive day today and has gained more than 11 percent in August. The Pakistan Stock Exchange (PSX) benchmark index has also risen considerably.
The coalition government in Pakistan has undertaken an austerity drive and has taken some unpopular decisions in a bid to avoid default. Fitch Ratings and Moody’s Investor Service said last month that they expect the country to secure $1.2 billion from the IMF. Recently, reports have emerged that Saudi Arabia has also agreed to renew its #billion deposit which has further eased pressure on Pakistan.
A senior economist at the London-bases research firm Tellimer Ltd. Told Bloomberg, “After completing a slew of difficult prior actions, Pakistan finally received staff-level approval to resume and extend its IMF program, which should pave the way for board approval barring any policy mistakes.”
The economist said that with the IMF program back on track, Pakistan will be given additional runway to avoid a crisis.
On Monday, Pakistan also signed the IMF’s letter of intent with the IMF Board set to meet on August 29 for the approval of the loan tranche.
According to Finance Minister Miftah Ismail, Pakistan has also secured $4 billion from friendly countries, fulfilling the condition set by the IMF. The minister added that the gains posted by the rupee are also not cosmetic and are driven by the government’s decision to curb imports.