Pakistan markets and country-specific ETF surged Wednesday after Saudi Arabia provided a “larger than expected” bailout to stabilize the emerging economy.
The Global X MSCI Pakistan ETF (NYSEArca: PAK) advanced 5.4% Wednesday.
Pakistan stocks rallied, experiencing its best single-day gain on record, after Saudi Arabia provided a $6 billion bailout to support the country’s sever account imbalances, Arab News reports.
“Pakistan’s stock market today recorded the highest surge in a single session in its entire history thanks to the Kingdom of Saudi Arabia’s much-needed support of $6 billion,” Mohammed Sohail, CEO of Topline Securities, told Arab News, adding that Saudi’s cash and deferred oil facility is far larger than expectations. “This will provide the much-needed support to Pakistan’s worsening external account position.”
The worsening account positioning has been further exacerbated by the depreciating Pakistani rupee currency, which has depreciated 16.8% against the U.S. dollar so far this year. The welcomed bailout deal could help stem the bleeding.
“Saudi Arabia’s offer has eased pressure on the currency market which has experienced an appreciation of the rupee from Rs134 to Rs132.80 against the dollar,” Malik Bostan, President of Forex Association, said.
Pakistan & IMF Negotiations
Furthermore, with the aid from Saudi Arabia, Pakistan is in a better position to negotiate with the International Monetary Fund for any further aid.
Saudi’s offer has “put Pakistan in a much better position to deal with the IMF”, Dr. Ikram Ul Haq, an expert on economic and legal matters, said.
In an attempt to address its severe balance of payment problems, Pakistan recently approached the IMF for a bailout package. The institute said it would dispatch a team early next month to negotiate the conditions for the loan.
Traders are anticipating the IMF will want to see the rupee currency to depreciate against the dollar. The weaker currency would make the country’s exports cheaper and imports more expensive, which would help Pakistan better manage its account deficit.
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