Market Pulse

IMF review moves toward a conditional positive conclusion

Dawn reported on October 6 that Pakistan and the visiting IMF mission were finalising the policy memorandum, potentially paving the way for about $1.2 billion under the EFF and RSF, subject to staff-level agreement and Executive Board approval. Energy measures under discussion include targeted gas and power subsidies, lower industrial cross-subsidies and greater transparency in petroleum freight equalisation.

Market impactA successful review would support reserves, sovereign funding and policy continuity. The associated reforms could improve medium-term energy-sector discipline, but near-term tariff, subsidy and disclosure changes may redistribute costs across utilities, industrial users and fuel distributors.

SOE support and power-sector weakness remain fiscal fault lines

The federal SOE review for July–December 2025 recorded Rs423.3 billion of aggregate profit at profitable entities and Rs342.8 billion of losses at loss-making entities. Government support reached Rs804 billion, while the official review highlighted circular debt and operating weaknesses in power and infrastructure as continuing fiscal risks.

Market impactThe figures reinforce the need for utility reform and tighter fiscal discipline. Power-chain liquidity, supplier receivables and sovereign funding requirements remain important constraints even if the IMF review concludes successfully.

Tight oil supply and LNG disruption keep the generation mix expensive

OPEC+ kept November production targets unchanged on October 4 while Gulf output remained below quota and Brent stayed above $100 per barrel. Pakistan’s constrained LNG supply has increased furnace-oil use for power generation, with at least 800 MW reportedly being generated on furnace oil during peak hours.

Market impactUpstream producers retain earnings support and fuel distributors gain a furnace-oil volume channel. The offset is a larger import and working-capital burden, together with greater payment risk across the power and gas chain.

Inflation and market yields keep financial conditions restrictive

September CPI inflation was 10.26% year on year and 1.27% month on month. The SBP policy rate remains 11.5%; on October 6, KIBOR offer rates were 11.98% for three months, 12.39% for six months and 12.68% for twelve months, while SBP reserves stood at $21.44 billion as of September 25.

Market impactBanks retain near-term asset-yield support and the reserve buffer limits immediate currency stress, but expensive funding continues to restrain leveraged industrial, construction and consumer demand.

Exports and cement volumes provide selective demand support

Pakistan’s goods exports rose 17.6% year on year to $2.94 billion in September and 10.8% in the first quarter, while textiles and apparel exports increased 6% in the quarter. Separately, September domestic cement despatches rose 7.35% to 3.788 million tonnes, with total southern despatches up 30.23%.

Market impactThe data support export-oriented manufacturers and cement producers with southern capacity, but the more moderate textile growth rate and high energy and financing costs argue against treating the recovery as uniform.

Power remains the clearest fiscal and liquidity vulnerability. Large SOE support, persistent circular debt and the substitution of scarce LNG with costly furnace oil increase fuel-financing needs and the risk of delayed recoveries across the chain.

ConstraintTargeted subsidies, credible tariff recovery, lower distribution losses or restored contracted LNG supply could improve the sector faster than expected.

An 11.5% policy rate and KIBOR above the policy rate preserve near-term asset yields, while a successful IMF review would strengthen external confidence and sovereign funding access. Banks remain comparatively resilient over the next few quarters.

ConstraintSOE and energy-sector financing needs can crowd out private credit and weaken exposed borrowers; faster disinflation would also compress reinvestment yields.

Unchanged OPEC+ targets, below-quota Gulf output and Brent above $100 support upstream realizations. Domestic producers also provide a natural earnings hedge against Pakistan’s imported-energy shock.

ConstraintGeopolitical de-escalation, emergency stock releases or recovering Gulf exports could reduce prices quickly, while circular-debt receivables can delay cash conversion.

Goods exports accelerated in September and textile and apparel exports grew 6% in the first quarter, providing a better demand and foreign-exchange backdrop for integrated exporters. Export revenue also offers partial protection against domestic weakness.

ConstraintTextile growth trails the broader export headline, while expensive energy, cotton inputs, finance and logistics can prevent revenue gains from translating into margins.

Domestic despatch growth and a sharp increase in southern volumes indicate that construction-linked demand is improving. Producers with southern capacity, export access and energy flexibility have the clearest operating-leverage opportunity.

ConstraintCoal, power, freight and financing costs can absorb volume gains, while northern exports and industry utilization remain uneven.