· In a surprising but welcome development, Pakistan and the IMF reached staff level agreement for a US$3bn (SDR2,250mn) Stand-By Arrangement (SBA).

· The agreement is likely to be approved by the Board in mid-July and will be valid for a period of 9 months.

· The SBA replaces the 2019 Extended Fund Facility (EFF) program which was slated to expire by June end with the 9th and 10th reviews pending.

· Within the SBA, the IMF has stressed implementation of Budget’24 as planned avoiding the pitfalls of unbudgeted spending, ensuring a market determined exchange rate as well as strengthening the viability of energy sector.

· Pakistan being in an IMF program, albeit an SBA instead of EFF, will help unlock much needed material US$ inflows from both multilaterals and bi-laterals. On the latter, in the immediate term, expect inflows of US$2-3bn from Saudi Arabia and US$1bn from UAE to materialize while support from China to continue.

· On the currency, we expect a slight pullback with normalcy to resume if trade is opened while on the market, expect a broad based rally albeit for a short period, given undemanding valuations, with KSE-100 P/E at less than 3x. For a sustained bull run at the PSX, economic reforms have to be the order of the day where failure on that part will just have kicked the can 9 months down the road.

Courtesy – AKD Research