Pakistan Finance Minister Miftah Ismail said the government was committed to reviving the International Monetary Fund program and putting the country back on a “sustainable growth path” after talks with the multilateral lender ended inconclusively the previous day.
There’s now a prospect of a default for the second time in Pakistan’s history even though the IMF said there was “considerable progress” in the discussions. Dollar bonds from Pakistan were among the worst in emerging markets on Thursday.
Separately, Pakistan’s Prime Minister Shehbaz Sharif said the Parliament will decide the next election timeline in a speech to the lower house. Ousted prime minister Imran Khan repeated demands for the government to call for fresh elections in six days, failing which he will return to Islamabad to stage a sit-in with two million people.
Earlier, Khan asked his supporters to gather at the center of Islamabad, defying a court order. The government had called out the army to protect its buildings in the capital amid clashes between protesters and security forces late last night.
Key Developments
Pakistan Mulls Gas Import Deal With Countries Including RussiaIMF and Pakistan to Continue Talks for Review of Suspended LoanDefault Threat Reaches Pakistan in Deepening Political CrisisPakistan’s Ousted PM Khan Vows to Defy Government Ban on Protest
Pakistan Dollar Bonds Halt Winning Streak After IMF Talks (8:19 p.m.)
Dollar bonds from Pakistan were among the worst in emerging markets on Thursday, halting a three-day winning streak after talks with the International Monetary ended inconclusively. The nation’s 2051 note fell by about half a cent to 60.2 cents on the dollar, according to indicative price data collected by Bloomberg.
“Despite, in the IMF words, ‘considerable progress,’ the sticking point remains the fuel and energy subsidies,” Tellimer’s Patrick Curran and Hasnain Malik wrote in a note Thursday. “No party disagrees with the need for the IMF, but no one wishes to bear the political cost of cutting subsidies.”
Strategists at the research firm kept a buy recommendation on the bonds as they see recovery values near or above current prices, they wrote.
Pakistan’s foreign exchange reserves decreased by $75 million to $10.1 billion in the week ended May 20, according to a central bank statement. The nation’s reserves have dropped to cover less than two months of imports.
“Pakistan has a very short window to get its political house in order and make the tough decisions required. Otherwise it can get into a vicious spiral, starting with a free-falling currency,” said Abdul Kadir Hussain, head of fixed-income asset management at Dubai-based Arqaam Capital.
Arqaam has reduced its exposure in Pakistan this year amid mounting economic pressures. Pakistan Prime Minister Shehbaz Sharif has not raised fuel prices, a prerequisite for resuming its loan program with the International Monetary Fund.
Pakistan’s parliament that has more than a year to govern will decide the next election timeline, PM Sharif said in the parliament’s lower house, called the National Assembly.
The country will not be held to the “dictation” of ousted former premier Imran Khan who is pushing for early elections, said Sharif.
National Assembly Passes Amendments to Election Bill (2:18 p.m.)
The National Assembly passed an amendment that will remove the use of electronic voting machines and disallow Pakistanis living overseas from voting. The bill will be sent to the Senate on Friday, local media reported.
Former premier Khan has often drawn support from Pakistanis outside the country. His party, Pakistan Tehreek-e-Insaf, is now pushing for elections a year earlier.
Pakistan said it is considering to sign a liquefied natural gas purchase agreement with various countries including Russia as it seeks to secure supply and ease a crippling shortage.
The government “will go for the most favorable deal,” the Ministry of Energy said in a statement to Bloomberg News. Pakistan is mulling a government-to-government contract to import the power plant and industrial fuel, according to the statement.
Pakistan’s benchmark KSE-100 Index rose as much as 1.1%, the most in almost two weeks, after Khan called off the protest for now. The stock market is taking a “breather from the recent battering,” said Qasim Shah, head of international sales at JS Global Capital Ltd.
Pakistan’s rupee fell 0.3% to 202.5 a dollar in intraday, it’s 16th consecutive drop. The nation was not able to resume its loan support from the International Monetary Fund with talks ending inconclusive.
Neuberger Berman is underweight on Pakistan bonds amid potential higher volatility, even as the money manager expects the nation will win a bailout deal with the International Monetary Fund and avoid a default.
“While we do see parallels in Pakistan and Sri Lanka, we think Pakistan will be able to avoid default as the country is already under a funded IMF program and hence, has a potential path out of the current situation,” said Michael Reyes, a portfolio manager at the company in Singapore.
Pakistan’s supreme court began hearing a government petition seeking contempt proceedings against former premier Imran Khan for not following court orders regarding the march to Islamabad, local media reported.
Foreign banks have stopped offering trade credit for oil imports to Pakistani refineries and some suppliers are seeking payment upfront citing high country risk, The News reports, citing unidentified industry officials. Finance Minister Miftah Ismail said the government is also committed to putting Pakistan back on a “sustainable growth path.”
Commenting on talks with the IMF earlier this week, Ismail said the officials from the multilateral lender emphasized the importance of “rolling back fuel and power subsidies.”
Both sides looked at “significant slippages” in FY2022, caused in part by the fuel subsidies, Mitfah said, adding that targets for the next financial year were also discussed.
“In the light of high inflation, declining forex reserves and a large current account deficit, we would need to have a tight monetary policy and consolidate our fiscal position. Thus govt is committed to reducing the budget deficit in FY23,” he said in a Twitter thread
Ex-premier Imran Khan demanded the government announce elections in six days or else he will return to Islamabad with two million people for a sit-in. The government is unable to handle a deteriorating economy, he added.
Pakistan will not accept a U.S.-backed government, Khan said in an echo of earlier allegations that Sharif and other parties orchestrated his ouster with help from the Biden administration. Washington has repeatedly denied this.
Imran Khan and his caravan are now heading to Democracy Chowk, a large square located in the government district that is close to the buildings housing the prime minister’s office, parliament and the supreme court.
Security forces have clashed with supporters and resorted to firing tear gas to disperse the crowd.
Foreign Minister Bilawal Bhutto Zardari said the ongoing bailout deal between Pakistan and the IMF were outdated given a number of global crises.
He told Reuters at the sidelines of Davos that the IMF deal was “not based on ground realities and the context has absolutely changed from the time that this deal was negotiated.”
The International Monetary Fund will continue its dialog with Pakistan after making “considerable progress” during a week-long mission that ended on Wednesday, the IMF said in a statement.
Pakistan’s finance minister Miftah Ismail said the government planned to reach an agreement with the lender in the current round of talks.
The government may allow Imran Khan to hold a rally on the outskirts of Islamabad but the former premier must commit to disperse once it’s over, Interior Minister Rana Sana Ullah Khan told a press conference. The government will not allow a sit-in, the minister added.
The former premier has said he will reach the parliament building in Islamabad by removing blockades en route. He told his supporters that the planned sit-in will be peaceful.
Foreign Minister Says Pakistan Has Immense Business Potential (2:42 p.m.)
Foreign Minister Bilawal Bhutto Zardari told a group of business leaders in Davos that Pakistan has immense potential if the country stayed united in the face of the war in Ukraine and climate change.
Khan Leads Rally in Khyber-Pakhtunkhwa Stronghold (1:57 p.m.)
Khan is now leading a convoy from his party’s provincial stronghold of Khyber-Pakhtunkhwa. Rallies have started across Pakistan’s major cities and are all expected to converge at Islamabad later in the day.
Pakistan’s government says intelligence reports suggested weapons were being stocked and would be used in the protest to create anarchy. A raid in Lahore has also led to recovery of weapons from the residence of an official with Khan’s Pakistan Tehreek-e-Insaf, a junior Petroleum Minister Musadik Malik said at a press conference.
President Arif Alvi summoned a parliament sitting for Thursday at 4 p.m., according to a statement by his office. No other details were given. Senators and members of the National Assembly will discuss the current political situation, according to a lawmaker from Prime Minister Shehbaz Sharif’s party.
The Supreme Court is hearing a petition challenging the government’s decision to ban Khan’s protest march and to block off key roads and buildings in capital Islamabad. It’s not clear when the court will hand down an order.
Police used tear gas to disperse protesters in Lahore, the country’s second-largest city and a stronghold of Sharif’s party, as they tried to remove barricades set up to prevent them from heading to Islamabad, local television channels reported
Pakistan’s dollar bonds due 2031 climbed a second day on Wednesday, with the debt indicated 1 cent higher at 63.315 cents on the dollar. The nation’s benchmark stock index dropped 0.4% on Wednesday to the lowest since December 2020. On Tuesday, the rupee slid to a record-low 201.41 per dollar.
The Pakistan Tehreek-e-Insaf plans to carry on with a protest march to Islamabad to push for the dissolution of the National Assembly and fresh elections. The party plans to hold a sit-in until Khan’s demands are accepted.
Sharif’s government has said it will stop the protest. Gatherings of five or more people in Punjab province have been banned and police have detained several of Khan’s party leaders in overnight raids earlier this week.
