IMPACT OF EXTERNAL FINANCING ON STOCK MARKET RETURN: CASE OF 24TH IMF SBA PROGRAM WITH PAKISTAN

Abstract

This study analyses the impact of external financing on stock returns with a focus on the case of Pakistan under the 24th Stand-by Arrangement (SBA) with IMF. The 24th IMF SBA with Pakistan, which is a short-term financing program, generally has a positive impact on the stock market performance, indicating investor confidence in country economy. This program, branded by fiscal restraint and other measures, led to new external inflows, which eased import controls and boosted investor confidence. The study explores the impact of external financial assistance, specifically over IMF programs, on market stability, and stock market performance in context of emerging economies. The study employs combination of an event study methodology and econometric analysis to analyze stock market data. In the first event study window (12 July 2023), there is no significant effect on the Pakistan Stock Exchange Returns. In the Second event study window, (29 April 2024) the market shows a mixed effect. In this regard, it positively affects those sectors that directly benefit from the IMF-backed reforms, whereas the rest of the market returns fluctuate due to uncertainty among the investors and structural impediments.