Pakistan’s market has captured significant global attention amid heightened tensions with India, according to a recent report by US publication Barron’s. The report highlights what some investors are calling a “macroeconomic miracle” in Pakistan over the past two years. Once grappling with annual inflation rates of around 40%, the economy now enjoys inflation near zero, while the value of Eurobonds maturing in 2031 has doubled from 40 cents on the dollar to 80 cents. The benchmark KSE-100 index has also tripled in value, underscoring the market’s impressive turnaround.
These positive developments have been supported by a stabilization agreement reached with the International Monetary Fund (IMF) last September. Under the agreement, Pakistan secured a $7 billion Extended Fund Facility (EFF), with over $2 billion already disbursed, providing a crucial lifeline amid fiscal challenges. “Pakistan is a good story,” remarked Genna Lozovsky, Chief Investment Officer at Sandglass Capital Management, as quoted by Barron’s. “So good it’s not risky enough for us anymore,” she added.
Khaled Sellami, an emerging markets sovereign debt manager at Barings, noted that while Pakistan has been known for its recurring boom-and-bust cycles, current indicators suggest that this time could be different. Sellami pointed out that the country’s current account is positive and that primary fiscal surpluses—excluding interest payments—are now a reality, a striking change from previous years. “When there is a rally, you need to be in early,” he advised, though he acknowledged that Pakistan’s economic recovery remains fragile and susceptible to external shocks.
Alison Graham, Chief Investment Officer at Voltan Capital Management, recalled the grim outlook during Pakistan’s near-default episode in 2022-23 following Imran Khan’s ouster. “Everyone thought Pakistan would default along with Sri Lanka in 2023,” she said. Instead, the State Bank of Pakistan’s decision to hike interest rates dramatically—from 10% to 22%—forced the economy into a recession that successfully wrung out inflation. This hard-fought stabilization, along with significant external financing from China, Saudi Arabia, and the UAE, has paved the way for a modest GDP rebound of 2.5%.
Despite the impressive turnaround, structural challenges remain. Pakistan’s export base is still heavily reliant on commodities like cotton, apparel, and cereals, which comprise almost two-thirds of its exports, compared to India’s diversification into IT and pharmaceuticals. However, Pakistan is gradually making inroads in IT outsourcing, with foreign sales rising from almost negligible levels to about $3 billion annually, while India commands a $200 billion market share.
On Monday, the Pakistan Stock Exchange (PSX) gained a record 9%, reflecting restored investor confidence following a recently announced ceasefire with India. “The market has reacted jubilantly to the ceasefire announcement after Pakistan established effective deterrence against India,” noted Yousuf M. Farooq, Research Director at Chase Securities.
While investors remain optimistic about the progress Pakistan has made under the IMF programme and its economic reforms, caution persists due to underlying vulnerabilities. Nevertheless, the blend of improved macroeconomic fundamentals, positive export trends, and renewed market confidence continues to paint a promising picture for Pakistan’s economic future.
