Stock market breaks records on circular debt resolution hopes

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The capital market came to a historic peak on Wednesday, which helped increase investors’ confidence in the potential progress in the circular loan resolution and the expectations of sufficient cash injection in the energy sector.

Investors responded positively to reports of progress in government -led reforms, which aims to tackle the challenges of the country’s long -standing power sector.

The Pakistan Stock Exchange (PSX) Benchmark KSE-100 Index increased by 972.93 points, or 0.83 %, which closed at 117,974.02, which increased to 117,001.09 of the previous session. The index targeted an intra -height of 118,243.63, while the lowest point of the session was recorded at 116,82.80.

The rally was driven by a widespread circular debt potential solution and hope around the energy sector, hopefully, which has been a major concern for the economy.

According to Arif Habib Limited, it was a high level of all time near the KSE -100 index session, a milestone that reflects the flexibility of the market during the wider economic recovery efforts.

“Energy is pushing the benefits of today’s market today,” said Samiullah Tariq, head of research at Pak Kuwait Investment Company, Samiullah Tariq, Samiullah Tariq, said.

In the energy sector, Pakistan’s furnace oil exports reached a record 933,000 tonnes in the first eight months of this fiscal year, as the country is advancing its use due to high costs and environmental concerns.

However, fuel oil exports in February were 39,000 tonnes, which was less than 190,000 tonnes in January. Industry sources attributed the drop to the accumulation of furnace oil in local refineries, as buyers prefer bulk purchases.

For the period of July 2024, electricity generating data has revealed that the furnace oil now plays the least role in Pakistan’s energy mix. The government’s new refining policy aims to reduce the production of high sulfur furnace oil by 78 %, which reduces daily production by 15,500 metric tons once the planned upgrade is reduced by 3,400 metric tons.

Meanwhile, Pakistan’s Information Technology (IT) exports maintained their pace above, which recorded $ 305 million in February, which reflects a 19 % increase in the year (YOY) year. However, exports on the basis of a month (mother) have decreased by 3.0 %. It indicates the 17th consecutive month of IT growth in IT exports, which reached $ 2.48 billion in the first eight months of fiscal year, up 26 % over the previous year.

Topline securities analysts attributed the increase of YOY in IT to a number of factors, including the Gulf Cooperation Council (GCC) region, especially for Pakistani firms.

Additional factors include changes to the State Bank of Pakistan (SBP) policy, which allowed IT firms to maintain a high share of their foreign currency earnings and increase the stability of the rupee, which encouraged exporters to bring back a large part of their profit in Pakistan.

Investors responded positively to the reports that the IMF has approved a request from government banks to borrow Rs 1.25 trillion ($ 4.5 billion) from domestic banks to reduce their growing circular debt without increasing the stock of government loans.

The agreement has been finalized during a policy debate between Pakistani authorities and the IMF, providing a very important financial breath room while dealing with incompetence in the power sector.

To finance these loans, Pakistan is likely to generate more than Rs 300 billion annually on the debit service surcharge (DSS) per kilowatt hour on electricity bills. The government also plans to retire 1.5 trillion rupees in circular debt in a circular loan.

In addition, renewal with free power generators (IPPs) is expected to save Rs 463 billion by reducing capacity payments and adjusting tariff structures.

Approval of this IMF loan reorganization indicates a $ 7 billion expansion fund facility (EFF) commitment to support Pakistan’s structural energy reforms. Government officials have assured the fund that deposit methods have been improved and operational utility will be improved that will prevent future loans from collecting.

Minister of Power Awas Ahmed Khan Legisi commented that although the government has not yet received any formal decision, he is hopeful that the IMF has approved the borrowing plan. He made it clear that the DSS would not change as part of the final term sheet talks with the banks.

The IMF has also shared a draft of the Memorandum of Economic and Financial Policy (MEFP) with Pakistani authorities, which is another step towards finalizing the ongoing debt process.

The fund has indicated the willingness to provide some relief for the construction and real estate sectors, though it is unclear whether such privileges will be implemented immediately or in the next financial budget.

The Pakistan and the IMF team last week concluded the talks without receiving the staff level agreement (SLA), which is a condition for Islamabad to formally request a $ 1 billion pledge under the EFF. As a result, the IMF’s Executive Board is expected to take additional policy talks in the coming days before reviewing the Pakistani issue.

PSX continued its rally on Tuesday, reflecting the growing market confidence in the ongoing economic reforms. The benchmark KSE-100 index climbed 801.50 points, or 0.69 %, which closed at 117,001.09, which increased from the previous close to 116,199.59. The index reached the intra -day height of 117,202.09, while the lowest level recorded during the session was 116,490.82.