With Pakistan bracing for general elections on February 8, 2024, to elect representatives for the National and Provincial Assemblies, there are high chances of a coalition government being formed, said Topline Securities, a brokerage house, in a report released on Saturday.

The brokerage house, in its latest report, said investors are interested in whether the new government will get a majority or if will it be a weak coalition government.

“We think that in case one party gets 50% plus seats, that will definitely boost investor confidence, and markets will react positively. This will also give a positive signal to the IMF (International Monetary Fund) and other lenders,” said the report.

“On the contrary, a coalition government with support of smaller parties will remain fragile and may struggle to implement the much-needed economic reforms,” it noted.

The report said “a smooth transfer of power to an elected government will help overcome concerns of bilateral and multilateral lenders, including the IMF, at a time when Pakistan is facing a severe external debt repayment challenge”.

Pakistan remains under a $3-billion, nine-month Stand By Arrangement (SBA) with the IMF. To date, Pakistan has received $1.9 billion from the Washington-based lender.

The current IMF programme is scheduled to end in the second week of April.

Meanwhile, Topline Securities highlighted that another key area to look for is how the new government will manage economic challenges, especially to deal with the IMF for a long-term program.

“The new government and its Finance Minister can play a significant role in negotiating with friendly countries for debt rollover/debt re profiling and finalizing a new IMF program that requires a lot of painful reforms,” it said.

Furthermore, it will be interesting to evaluate the new government’s relationship with the establishment.

“Pakistan has a poor history of worsening civil-military relationships that have badly affected the political continuity, with negative implications for the economy and the markets,” Topline said.

On the stock market performance, the brokerage house said that the Pakistan Stock Exchange (PSX) recovery is likely to continue in 2024.

“We expect benchmark KSE-100 total return index to reach 75k by Dec-2024.

“However, this is based on current low PE (Price to Earnings) multiples without assuming any re-rating amid high risk of debt sustainability. We may also see a post-election rally in line with historical trends,” it said.

Topline said that a smooth transfer of power to a new government after elections, a new long-term funding program from the IMF and an expected fall in interest rates will be the key drivers of equities in 2024.