Financial aid: A banner in Lahore in conjunction with Pakistan’s Independence Day celebrations. The country is expected to win a loan approval from the IMF board, paving the way for the release of US$1.2bil (RM5.36bil) in immediate funds. — AFP
ISLAMABAD: Pakistan is poised to evade a near-term default amid expectations the International Monetary Fund (IMF) will resume its US$6bil (RM26.8bil) bailout programme, but a rally in the nation’s assets may fizzle out amid escalating political tensions.
Columbia Threadneedle Investments, Tellimer Ltd and Natixis SA predict Pakistan will win a loan approval from the IMF board when it meets today, paving the way for the release of US$1.2bil (RM5.36bil) in immediate funds.
Two days later, focus will shift to a court hearing where former premier Imran Khan has been asked to appear as he battles a string of legal troubles.
“I do think the bulk of the market rally is already in the price,” said Eng Tat Low, an emerging-market sovereign analyst at Columbia Threadneedle in Singapore.
“I expect the next 12 months to be challenging with the general elections looming. The risk of worsening political backdrop is definitely still considerable and elevated, and is a risk that is unlikely to dissipate anytime soon.”
Pakistan’s dollar bonds are the top performers in emerging markets in August after Belarus, while the rupee has soared above its peers as investors cheer the prospect of an IMF aid.
But the political drama that is unfolding threatens to undermine the fragile financial stability as loyal followers of Khan – ousted in April – stage protest rallies.
“The political uncertainties will persist with speculations on early elections,” said Junyu Tan, an economist at Natixis in Singapore. “This will pose a major risk for Pakistani assets.”
The mixed performance in Pakistan’s dollar bonds underscore the nation’s rocky path ahead.
Columbia Threadneedle expects Pakistan bond prices to be range-bound in the next 12 months. The dollar bonds have returned almost 16% to investors this month, according to a Bloomberg index. Its stocks have rallied 6%.
The rupee, which surged 8% this month, will probably weaken to 240 by the end of the year, according to London-based research firm Tellimer.
“Pakistan’s government will need to deliver on its reform promises to set its debt and reserves on a sustainable path,” said Patrick Curran, a senior economist at Tellimer.
“Any deviation from its reform targets, however minor, could shatter market confidence and send the rupee back into a tailspin.” — Bloomberg
