PSX under pressure as Ramadan slowdown, IMF talks weigh on sentiment

• KSE-100 Index closes at 111,986.88 points.
• Market drops 1,264.78 points, down 1.12%.
• Index hits low of 111,829.14 amid bearish sentiment.

The capital market opened the week on a negative trajectory, with the KSE-100 Index experiencing selling pressure amid thin trading volumes.

Investors remained cautious ahead of the upcoming International Monetary Fund (IMF) review, while the seasonal Ramadan effect contributed to lower participation in the market.

The KSE-100 Index closed at 111,986.88 points, marking a decline of 1,264.78 points, or 1.12%, from the previous session’s close of 113,251.66 points. The index touched an intraday high of 113,591.83 points before retreating to a low of 111,829.14 points

The market’s choppy movement reflected investor hesitation, as uncertainty over fiscal targets, monetary policy, and upcoming IMF negotiations weighed on sentiment.

Commenting on the session, Sana Tawfik, Head of Research at Arif Habib Limited, said: “It (downward trend) is mainly due to selling pressure. Due to the Ramadan factor, low volumes are being observed too.”

The State Bank of Pakistan (SBP) is expected to take a measured stance on further monetary easing, despite declining inflation supporting the case for a rate cut. 

The Monetary Policy Committee (MPC) is scheduled to meet on March 10, just days after the IMF delegation’s arrival on March 3 for the review of Pakistan’s $7 billion bailout package.

The central bank has already slashed rates by 1,000 basis points (bps) since June 2024, bringing the benchmark policy rate to 12%. However, analysts suggest that while another rate cut is possible, it may be limited to 50bps, given Pakistan’s fiscal challenges and ongoing IMF discussions.

Arif Habib Limited (AHL), in a report, highlighted the rapid decline in inflation, which dropped to 2.4% in January — the lowest level in 111 months. February inflation is expected to decline further to 2.2%, strengthening the case for further easing.

“Given the sharp decline in inflation and stable reserves, a 50bps rate cut appears to be a logical step in the upcoming policy meeting,” AHL’s report stated.

As Prime Minister Shehbaz Sharif’s government prepares for the IMF review, concerns over a massive Rs604 billion tax shortfall have intensified. The Federal Board of Revenue (FBR) needs to collect Rs1,825 billion in March to meet the IMF’s target of Rs9,168 billion by March 31.

However, the Ramadan season, public holidays, and fewer working days leading up to Eid ul Fitr are expected to hamper tax collection, making the target increasingly difficult to achieve.

With total collections for the first eight months of the fiscal year at Rs7,343 billion, the FBR is already trailing behind its Rs7,947 billion target. The shortfall is likely to surpass Rs1 trillion by the end of the fiscal year in June 2025, raising concerns over Pakistan’s ability to meet IMF conditions.

Two options remain for Pakistani negotiators as they prepare for discussions with the IMF. The first is to formally request the IMF to revise the Federal Board of Revenue’s (FBR) tax collection target downward, acknowledging the challenges posed by a significant revenue shortfall.  

The second option is to utilise the available fiscal space created by lower debt servicing costs. By reallocating these savings, the government could maintain its fiscal deficit within IMF-approved limits, ensuring compliance with broader financial stability goals while mitigating the pressure on revenue collection. 

On Friday, the KSE-100 Index closed at 113,251.66 points, down 532.65 points (-0.47%) from the previous close of 113,862.33 points.