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Pakistan’s dollar bonds have dropped by 5-6% since the end of last month. The downturn is driven by a combination of factors, including the ongoing conflict with Afghanistan and the surge in oil prices linked to the Middle East war. As Pakistan relies heavily on oil imports from the Middle East, potential disruptions in the Strait of Hormuz pose inflationary risks and further strain the economic outlook. Analysts note that investors are cautious, adopting a wait-and-watch approach amid the current uncertainty, adding that current bond spreads are not seen as adequately compensating for the heightened risks. Meanwhile, discussions with the IMF over Pakistan’s $7bn bailout program have been extended, as the IMF reassesses the country’s economic projections in light of volatile oil markets. Although Pakistan has made progress in stabilizing its economy through reforms, including rebuilding foreign exchange reserves and increasing revenues, this recovery momentum is said to be being overshadowed by external shocks. Its equity markets have also come under sharp pressure, with the KSE-100 Index falling over 21% from its January peak.
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