Historical PSX Reaction: The Short-Term Pattern
Key IMF Episodes & Market Response
| Year | Program | Immediate PSX Reaction | Medium-Term Outcome |
|---|---|---|---|
| 2008 | SBA ($7.6bn) | Sharp relief rally | Decline as austerity hit |
| 2013 | EFF ($4.3bn) | Confidence boost | Growth slowed |
| 2019 | EFF (~$6bn) | Initial volatility | COVID masked effects |
| 2023 | SBA ($3bn) | +5.9% single-day surge | Multi-month rally |
| 2024 | EFF ($7bn) | New highs | Volatility returned |
Source synthesis: Reuters, academic studies, broker research, PSX data
👉 Key insight:
IMF approvals consistently reduce tail risk, which PSX prices immediately.
Why the Market Rallies First (Even When Austerity Is Coming)
This is counterintuitive but logical.
PSX is pricing:
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Lower probability of default
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Lower probability of capital controls
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Lower probability of forced devaluation chaos
It is not pricing:
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Tax hikes
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Energy price increases
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Slower GDP growth
Those hit later.
The Long-Term Drag: Austerity Is Not Market-Friendly
Multiple empirical studies show mixed outcomes:
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1997–2017 GARCH study: IMF lending announcements had a statistically significant negative effect on PSX returns over time due to growth suppression.
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2015–2022 regression studies: Short-term positive correlation, inconsistent longer-term results.
Why?
Because IMF conditions typically include:
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