Moody’s Investors Service has said that a coalition government in Pakistan may not be very united and politically strong, and it will face challenges in securing consensus to pursue difficult, but necessary reforms, Bloomberg reported this on Wednesday.
According to some investors, the breakthrough in the political impasse could still lead to an unstable administration.
The nomination of former Prime Minister Shehbaz Sharif as Pakistan’s new leader on Tuesday, following support from the Pakistan People’s Party (PPP), ended a deadlock arising from the split mandate in the February 8 elections.
Shehbaz Sharif, who previously served as prime minister from 2022 until last year, played a crucial role in securing the nation’s $3 billion International Monetary Fund (IMF) bailout, which is scheduled to conclude in April.
Pakistan’s stocks surged on Wednesday, breaking a four-day downward trend, while both dollar bonds and the rupee remained stable amid prospects of a new government.
The benchmark KSE-100 Index soared by as much as 2%, marking its best performance since January 1. However, the country’s dollar bonds experienced a slight dip, with notes maturing in 2031 declining by 0.3 cents to 65.7 cents on the dollar.
Amjad Waheed, CEO of NBP Fund Management in Karachi, expressed optimism, stating, “The initial anxiety will end when the new government comes to power. The stock market will change direction as the government is formed and it will gradually start to rise.” Pakistan’s markets had faced pressure in the wake of inconclusive polls, as investors awaited the announcement of economic policies to address the nation’s financial crisis and potential plans for another bailout.
The new government’s primary challenge will be negotiating a new loan program with the IMF, given Pakistan’s $25 billion external debt obligations in the upcoming fiscal year, which is approximately three times its foreign-exchange reserves.
Memoona Tanveer, head of corporate and high net worth individuals at Dawood Equities Ltd., noted, “It is clear that another coalition government is in formation, leading to stability. Rupee and dollar bonds should remain steady as the current account deficit is improving, and improvement in reserves has quashed all speculations of default.”
Bilal Khan, head of institutional equity sales at Arif Habib, cautioned that the stock market’s recent declines have created uncertainty, requiring significant positive catalysts to overcome. He remarked, “The declines at the stock market this week have created an overhang, which will need some very positive triggers to overcome.”
Coalition govt will not be beneficial for Prosperity of Pakistan