The Pakistan Stock Exchange witnessed a significant downturn on Thursday, with the benchmark KSE-100 index tumbling by more than 2,000 points. This sharp drop comes in the wake of escalating regional tensions following India’s actions in response to the recent Pahalgam terror attack.
According to Pakistan’s leading daily Dawn, the market began its descent early in the day. By 11:13 am, the index had fallen by 1,086.51 points or 0.93%, settling at 116,139.63. The decline deepened in the afternoon, with the index shedding a total of 2,116.92 points, or 1.81%, to reach 115,109.22 by 2:56 pm.
This marks the second major shock to Pakistan’s financial markets in a matter of days. On April 22, the International Monetary Fund (IMF) downgraded the country’s economic growth forecast for the current fiscal year to 2.6%, a reduction from the earlier projection of 3%.
Pakistan, which has recently shown tentative signs of economic recovery after years of financial distress, is grappling with mounting challenges. The country’s heavy dependence on IMF support continues to shape its economic trajectory. The IMF’s revised outlook cited risks including global protectionism, volatile commodity prices, and the lingering effects of tariffs—such as the now-suspended 29% tariff imposed by the United States on Pakistani imports.
Despite these hurdles, the IMF has acknowledged Pakistan’s efforts in stabilising its economy. Inflation has dropped to its lowest levels since 2015, financial conditions have improved, and external accounts have shown signs of recovery. In March, the IMF reached a staff-level agreement with Pakistan for a review of the Extended Fund Facility (EFF), which could unlock a further $1 billion in funding. Additionally, Pakistan is poised to receive $1.3 billion under the IMF’s Resilience and Sustainability Facility over the next 28 months.
The World Bank’s report, released just a day before the market crash, estimated that Pakistan’s economy would grow by 2.7% in the fiscal year ending June 2025. However, it noted that this modest growth comes with significant caveats. Sectors like agriculture and industry have suffered from climate impacts, rising costs, and decreased government expenditure. The services sector also remains sluggish, further complicating efforts to generate employment and reduce poverty.
Fitch Ratings, in a February assessment, acknowledged improvements in inflation control—highlighting the central bank’s decision to lower policy rates to 12%. However, it also stressed that long-term economic stability would require Pakistan to implement challenging structural reforms, including reducing subsidies and trade protections.
One such measure has been the recent removal of the Minimum Support Price (MSP) for key crops, reflecting Pakistan’s commitment to fulfilling IMF conditions and ensuring future funding.
While macroeconomic indicators have shown signs of improvement since the financial crisis peak in May 2023, when inflation soared to 38.5% and foreign exchange reserves dwindled to critical levels, the current combination of geopolitical instability and ongoing economic reforms presents a precarious path ahead for the country.
