Pakistan’s stock market has soared and foreign reserves hit $21.5 billion, signaling an economic recovery. However, beneath the surface, high energy costs and renewed militancy in border provinces are weighing heavily on the outlook. The central bank recently raised rates by 50 basis points to 12% as inflation accelerated, with oil topping $100 a barrel and wheat prices rising. While the government highlights record reserves and credit upgrades, higher rates risk further squeezing a weak domestic economy and household incomes. Former finance minister Miftah Ismail warned that suppressing demand to shore up external finances comes at the cost of growth.
Islamabad reached a staff-level agreement with the IMF last month that could unlock $1.2 billion, bringing total disbursements to $5.7 billion under two arrangements. The administration of Prime Minister Shehbaz Sharif points to reserves of $21.5 billion, enough to cover over four months of imports. Pakistan has raised over $4 billion in global markets this year and seeks further ratings upgrades to tap debt markets again. Finance Minister Muhammad Aurangzeb said the country is diversifying funding sources away from ally deposits.
New political challenges have emerged, with supporters of jailed former Prime Minister Imran Khan clashing with security forces. Militant violence has surged in Khyber Pakhtunkhwa and Balochistan. Despite a resurgent geopolitical position, including peace talks mediated by Pakistan, the economy remains vulnerable. Analyst Mattias Martinsson of Tundra Fonder AB highlights the need to improve tax coverage and reduce high corporate and energy costs, noting Pakistan imports 80% of its oil requirement.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing