SIFC: Catalyst for Pakistan’s economic prosperity

05 December 2023

Published in: Pakistan Observer

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Pakistan’s economy is currently witnessing a period of promising expansion and stability, characterized by a range of encouraging developments.

These positive factors comprise the Pakistan Stock Exchange (PSX) reaching record highs, the strengthening of the Pakistani Rupee against the Dollar, and a notable increase in investments from international financial institutions and other channels.

Consequently, Pakistan’s economic outlook appears to be increasingly optimistic, paving the way for a prosperous future.

It is crucial to acknowledge the significant role played by the SIFC in contributing to this positive trajectory.

Pakistan Stock Exchange has been experiencing a remarkable surge, recently surpassing the milestone of 59,000 points and reaching an all-time high. This impressive performance can be attributed to the prevailing economic optimism in the country. Over the past three weeks, the index has seen a cumulative increase of 12.5% or 6,626 points since surpassing the previous six-year record high of 52,876 points on November 3, 2023.

The market’s continued upward momentum can be attributed to two main factors. Firstly, investors are optimistic about the economic revival following the International Monetary Fund’s (IMF) staff-level approval for the next loan tranche of $700 million to Pakistan.

A prominent brokerage house has projected that the benchmark index will reach 75,000 points within the next 13 months, specifically in December 2024. This forecast is based on major developments expected in the near future.

One of these developments is the potential reduction of the interest rate by seven percentage points to 15% by the end of December 2024. This decrease would be significant, considering the current record high rate of 22%.

Another positive indicator for Pakistan’s economy is the strengthening of the Pakistani Rupee against the US Dollar. In the latest session on November 21, 2023, the Rupee appreciated by 0.06%, settling at 285.79 against the Dollar, marking the fourth successive session of gains.

The Pakistani Rupee has gained recognition as the world’s best-performing currency in September 2023, as stated by Tahir Abbas, head of research at Arif Habib Limited, a securities brokerage firm.

He also expressed optimism that the PKR currency will continue to strengthen due to the government’s crackdown on illicit dollar trading and the enforcement of state policies.

The Federal Investigation Agency has conducted nationwide raids on exchange companies involved in informal channels of trading without proper documentation. The SIFC initiative has been implemented to address the issue of dollar hoarding and smuggling, which has resulted in the continuous appreciation of Pakistan’s national currency.

Since the crackdown on black market operators commenced on September 6, tens of millions of dollars have flowed back into Pakistan’s interbank and open markets.

This crackdown has played a significant role in the positive turnaroundof the currency.The strengthening of the Pakistani Rupee against the US Dollar signifies a more robust economy. It enhances the purchasing power of the local currency, leading to reduced import costs, controlled inflation, and increased encouragement for domestic production. These factors ultimately contribute to the overall economic growth and stability of the country.

One of the primary objectives of the SIFC is to attract investment from friendly nations. Pakistan has successfully attracted significant investments from international financial institutions and other sources, demonstrating confidence in the country’s economic potential due to SIFC’s efforts.

Institutions such as the International Monetary Fund (IMF), World Bank and Asian Development Bank (ADB), have provided crucial capital for infrastructure development, job creation, and poverty alleviation programs.

These investments will further strengthen Pakistan’s economy and contribute to sustainable growth. Notably, Pakistan and IMF have reached a preliminary deal for the release of $700 million from a $3 billion bailout package.

Additionally, the ADB has approved a $250 million loan to enhance the power transmission network in Punjab and Khyber Pakhtunkhwa provinces, which will stabilize the national grid and reduce transmission losses. The Asian Infrastructure Investment Bank (AIIB) and the World Bank will co-finance Pakistan’s second Resilient Institutions for Sustainable Economy (Rise-II) program with a $600 million loan, aiming to improve fiscal management and regulatory conditions that support growth and competitiveness.

The financing plan includes $250 million from AIIB and $350 million from the World Bank’s International Development Association

Prospects for a strong Pakistani economy are highly promising. The record highs in the Pakistan Stock Exchange (PSX) reflect increasing investor confidence and a positive market sentiment. Additionally, the strengthening of the Pakistani Rupee against the Dollar signifies improved economic stability and competitiveness.

Furthermore, the future investments from international financial institutions and other sources demonstrate the trust and belief in Pakistan’s economic potential. With these positive developments, Pakistan is well-positioned for sustained growth and prosperity in the coming year.