Shares at the Pakistan Stock Exchange (PSX) opened the week in green, with the benchmark KSE-100 index gaining 485.96 points.

The index closed at 40,155.16 points, up 1.23 per cent. It reached an intraday high of 698.23 points, or 1.76pc, around 10:45am.

Analysts attributed the stock market’s rise to the government’s steps to reduce circular debt in the gas sector, including the formation of a committee led by the president of the Institute of Chartered Accountants of Pakistan Ashfaq Tola to suggest a way forward on debt settlement.

“The market opened on a strong note, with the energy sector seeing buying interest. This follows recent news that the government is looking to address the circular debt issue,” Head of Equity at Intermarket Securities Raza Jafri said.

“There is also a feeling that the selling is overdone,” he added, referring to the stock market crash last week when the benchmark index lost over 1,900 points in three days.

Jafri said the next trigger that could positively affect the market was expected inflows from Saudi Arabia that would boost the country’s foreign exchange reserves, which are at an eight-year low.

Meanwhile, Aba Ali Habib Securities’ Salman Naqvi cited media reports that the International Monetary Fund (IMF) has demanded the government come up with a viable plan to reduce circular debt in the energy sector to clear the much-needed ninth and tenth reviews satisfactorily.

“If the government manages to pay the significant receivables of [gas companies] through any means, it will greatly benefit PPL, OGDCL and PSO,” he commented, noting that the weighted average of these companies in the stock market was “high”.

Shares of PPL closed with gains of Rs4.31 or 7.5pc and OGDCL’s at Rs3.89 or 5.33pc, while PSO shares rose by Rs5.25 or 3.96pc.

Naqvi said investors also bought shares in other sectors that were already in the “oversold zone” last week. He cautioned, however, that the market’s gains were unsustainable as it was a rollover week, in which futures contracts are either settled or rolled over to the next month, and the country’s law and order situation was worsening.

First National Equities Limited Chief Executive Ali Malik said the gas, exploration and refinery sectors led the index upwards on expectations that the government would address circular debt and raise gas prices, which would increase profits and dividends.

Another reason was the perception that political instability would be reduced for a while after PTI Chairman Imran Khan said Punjab Chief Minister Chaudhry Parvez Elahi would dissolve the provincial assembly after taking a trust vote on Jan 11, Malik said. The PTI had previously announced to dissolve the Punjab and Khyber Pakhtunkhwa assemblies on Dec 23.

“Stocks showed sharp recovery in the year-end rally at PSX on strong valuations,” Arif Habib Corporation’s Ahsan Mehanti said, adding that Imran’s statement has also eased political noise.

“World Bank flood relief support approval of $1.7 billion, shrinking trade deficit and surging global equities and global crude oil prices played a catalyst role in bullish activity,” he said.

Circular debt

Media reports quoting the power division state that the circular debt which stood at Rs2.253 trillion by end of September last year has now reached Rs2.437tr, showing an increase of Rs185 billion.

Amid the country’s deteriorating economic condition, Prime Minister Shehbaz Sharif had last week directed authorities to take concrete steps to reduce circular debt. Later, Defence Minister Khawaja Asif had shared that the government would approach the provinces for the implementation of a policy aimed at saving energy, which among other measures, would reduce the timings of markets, restaurants and wedding halls.

Subsequently, the government notified a 13-member committee which would be responsible to undertake a detailed mapping of the ‘gas sector circular debt stock as of June 30, 2022’, segregating the principal amount of debt, late payment surcharges, penalties and liquidity damages among the PSEs of petroleum and power sectors.

It would work out a comprehensive circular debt settlement plan through cash and non-cash payments and adjustments and also cover legal and procedural requirements on the pattern of a previous circular debt settlement in 2013.

A report published by The News last week had quoted government officials as saying the IMF had asked Islamabad to “take actions on account of fixing cash-bleeding energy sector including power and gas, take additional taxation measures and pursue structural reforms in the remaining period of the Fund programme”.

It is essential for Pakistan to clear the ninth review for the release of $1.18 billion of a $7bn IMF programme, given its low foreign exchange reserves which are barely enough to cover a month’s imports.

The State Bank of Pakistan’s foreign exchange reserves have declined by $11bn during a year. In Dec 2021, the central bank’s reserves were $17.686bn which now stand at $6.7bn as of Dec 9.

Pakistan has to repay at least $13bn in the remaining part of the financial year. But it is unclear when it will receive more inflows from bilateral and multilateral institutions, giving rise to default fears.