How IMF Programs Actually Move PSX: Short-Term Relief vs Long-Term Reality

The Long-Term Drag: Austerity Is Not Market-Friendly

Multiple empirical studies show mixed outcomes:

• 1997–2017 GARCH study: IMF lending announcements had a statistically significant negative effect on PSX returns over time due to growth suppression.

• 2015–2022 regression studies: Short-term positive correlation, inconsistent longer-term results.

Why?

Because IMF conditions typically include:

• Fiscal tightening

• Subsidy removal

• Higher energy tariffs

• Tax expansion

• Slower domestic demand

This compresses margins and volumes after the relief phase.

Why 2023–2025 IMF Cycles Look “Different”

This time, markets reacted more strongly. Why?

Three reasons:

1. Starting point was collapse-level risk
   Reserves near $4bn meant default was priced in.

2. Rate cycle turned supportive
   SBP moved from 22% → ~10.5% (see TradingEconomics data you shared).

3. Domestic liquidity replaced foreign flows
   Retail participation surged (15,287 new UINs in Dec-25 alone).

IMF didn’t create growth—it removed panic.

Which PSX Sectors Benefit Most During IMF Programs

Short-Term Winners

• Banks (rates, liquidity, government paper)

• Energy (policy protection, cash flows)

• Fertilizers (subsidy logic, agri stability)

Medium-Term Losers

• Autos (unless rates fall meaningfully)

• FMCGs (price controls, inflation politics)

• Highly leveraged cyclicals

IMF cycles favor balance sheets, not stories.

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