The KSE-100 benchmark of the Pakistan Stock Exchange (PSX) opened in the green on Friday, continued its pace from the previous day and rose more than 900 points in the first hour of trading, just hours after the government raised oil prices . comply with the provisions of the International Monetary Fund (IMF).
According to the PSX website, the index reached 43,509.38 to 11:24 – 2.27 percent – after gaining 967.67 points from 42,541.71 points the previous day.
The stock market rally is attributed to the government’s move to end the months-old fuel price freeze imposed by the previous PTI government in February.
“The market is responding to the government’s move to abolish fuel subsidies. It shows the government’s determination to address the initial problems in the economy and pave the way for the IMF program and other sources of funding, “said Saad Hashemy, CEO of BMA Capital Management. Reuters.
Raza Jaffrey, head of research at Intermarket Securities, described the increase in fuel prices as a “strong step” to revive the IMF program.
“It helps the KSE-100 [index] recover some of its sharp losses earlier this month and also add confidence to the foreign exchange market. There is still a need for more clarity in politics, but markets have been relieved that it is likely to avoid the doomsday failure scenario, “he said. Dawn.com.
Former PSX CEO Zafar Moti was also optimistic about rising fuel prices and the consequent reduction in fuel subsidies, which paved the way for the release of loans by the IMF and other friendly countries.
He said the move would put an end to “uncertainty” about the IMF program, which boosted investor sentiment.
Moti hoped that today’s rally would continue next week.
Rising fuel prices
On Thursday evening, the government raised prices for all petroleum products by Rs 30 per liter – the highest ever increase in all petroleum products – in a bid to reduce fuel subsidies, which hampered IMF talks and the resumption of the $ 6 billion facility, which has been suspended since the beginning of April.
The clerk said earlier Dawn that this was the first step in convincing the IMF to release another $ 1 billion tranche as soon as possible.
When announcing the price increase, Finance Minister Miftah Ismail expressed hope that the exchange rate will now improve, markets will stabilize, the economy will level out and investors will make a positive decision.
The finance minister said that with a jump of 30 rupees, the prices of gasoline in ex-warehouses would increase to 179.86 rupees per liter, high-speed diesel (HSD) to 174.15 rupees, kerosene to 155.56 rupees and light diesel (LDO) at 148.31 Rs. He added that the government will pay about Rs 56.71 per liter of subsidy for HSD, Rs 37.84 for LDO, Rs 21.83 for gasoline and Rs 17.02 for kerosene.
On Wednesday, after the final round of talks with the Pakistani government, the IMF called for “concrete policy measures”, including the abolition of fuel subsidies, to achieve the programme’s goals.
The economy has been on the brink in recent weeks
Both the PSX and the rupee have come under pressure in recent weeks because the government has failed to take decisive economic decisions, the most significant of which has been the abolition of fuel subsidies.
Analysts and experts have linked economic pressure to uncertainty about the continuation of the IMF’s lending program, along with a rising oil import bill and a widening trade deficit.
The PSX lost 1,447.67 points on May 9 in the so-called “bloodbath”.
AND Dawn The May 11 editorial noted that the most important factor behind the disruption of investors was the inability of the new coalition government to come up with a credible plan to make politically tough decisions to recover the economy. For example, he has consistently ruled against the abolition of fiscally unsustainable fuel and energy subsidies, a “previous measure” that the IMF requires it to take before agreeing to resume funding.
At earlier meetings with Ismail, the IMF linked the continuation of its lending program to the abolition of fuel subsidies introduced by the previous government. However, Prime Minister Shehbaz Sharif has repeatedly rejected a summary by the Oil and Gas Regulatory Authority and the Ministry of Finance about rising fuel prices.
On February 28, PTI announced a four-month freeze on gasoline and electricity prices (until June 30) as part of a series of measures to bring relief to the public.
At the time, and even after coming to power last month, the PML-N and other parties in the new coalition government harshly criticized Imran Khan’s government for “derailing” the IMF program through unfunded fuel subsidies. But even though these parties led for more than a month, they did not reverse these subsidies; although the finance minister has repeatedly stated that these subsidies are not feasible and costs the government Rs 120 billion a month.
Earlier this month, Ismail said the price of gasoline should be Rs 245 per liter, according to an agreement the former government has reached with the IMF. However, the PML-N government still sold it for Rs 145 per liter and will try to keep the price as good as possible, he said – a sign that the new government is having difficulty making a decision that might be unpopular with its constituents. .
In an editorial published on May 13 Dawn he said the PML-N had been caught up in “private consultations” – a reference to senior management’s trip to London to meet with Nawaz Sharif – as panic grew over his inability to start working on economic recovery.
The editorial called on the PML-N to make a firm decision on its future course of action, saying, “It’s time to take the lead or get out of the way.”
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