- A recent conflict with India is unlikely to derail the recovery: report.
- Inflation goes from 40% to zero
- Eurobonds, the stock market has a strong recovery
Pakistan has achieved a rare “macroeconomic miracle” in the past two years that has drawn the attention of global investors, even if the country faces increased tensions with India, American publication Barron reported.
According to the report, inflation has increased from a peak of almost 40% to zero, while the 20,31 Euro-Obstacles of Pakistan doubled, from 40 cents on the dollar to 80 cents. The KSE-100 reference index also tripled during this period.
A “stabilization agreement” of $ 7 billion was concluded between the government and the International Monetary Fund (IMF) in September 2023, more than $ 2 billion has already been disbursed. Since he joined the IMF in 1950, Pakistan has scored 24 separate rescue programs.
“Pakistan is a good story,” said Genna Lozovsky, head of investments at Sandglass Capital Management, was cited by Barron as saying. “So it is no longer risky enough for us.”
The report also mentioned that the recent military climbing with India, currently under a cease-fire, is unlikely to derail the economic recovery of Pakistan, but the “fragile foundations of the country could”.
Khaled Sellami, a director of the sovereign debt of emerging markets at Barings, said that Pakistan was known for “boom and Boust cycles throughout its history”.
The current stabilization phase of Pakistan began after having narrowly avoided the defect in 2022-2010. This period was marked by devastating floods, an increase in oil prices following the conflict in Russia-Ukraine and major domestic political upheavals.
“Everyone thought that Pakistan would be lacking with Sri Lanka in 2023,” noted Alison Graham, director of investments at Voltan Capital Management.
Instead, the Pakistan State Bank has implemented an aggressive monetary tightening, to bring interest rates from 10% to 22%. This presented the economy in recession but managed to approve inflation.
The main creditors of Pakistan – China, Saudi Arabia and the United Arab Emirates – overturned existing loans, but have ceased to extend the new credit. However, the gross domestic product (GDP) increased by 2.5% in 2024 and, for the first time in years, Pakistan has obtained a current account surplus as well as a primary financial excess, to the exclusion of payments of interest.
“The balance of the current account is positive and they have a main budgetary surplus,” noted Sellami. “This is something we haven’t seen for many years.”
The report also contrasts industrial growth in Pakistan with the IT and pharmaceutical sectors of India. Pakistan exports remain concentrated in low -value products such as cotton, clothing and cereals. Although the country is progressing in computer externalization, annual foreign sales reaching $ 3 billion, it still turns out to technological exports of 200 billion dollars from India.
Without an added scale to climb, the spell and electoral cycles with free expenditure can continue to drive the boom and the bust of Pakistan, said Graham. “Pakistan remains extremely fragile to external shocks,” she said. “When there is a rally, you must be early.”
Despite these challenges, Sellami expressed its optimism and remains “constructive” on the Euro-objectacles of Pakistan. “The government knows if they go away from the stiff rope they walk, they will not have external finance,” said Sellami.
Earlier on May 9, the IMF board of directors approved the immediate disbursement of approximately $ 1 billion in Pakistan under the current installation of the extended fund and granted additional arrangement for resilience and $ 1.3 billion (RSF).
Pakistan obtained a rescue program of $ 7 billion from the IMF last year and obtained a new climate resilience of $ 1.3 billion in March.
The program is essential to the $ 350 billion economy, and Pakistan said it had stabilized under bailout that helped him postpone a default threat.