By Asif Shahzad
ISLAMABAD (Reuters) - Pakistan on Thursday approved a 20-billion rupee ($134 million) fund to help boost its stock market after big losses over the past two years, the finance ministry said.
Pakistan's stock market has been one of the world's worst performing over the past two years, with its benchmark 100-Share Index losing almost a third of its value since hitting an all-time high of 53,127 points in May 2017.
The market has been hammered because of political instability and a weakening economy that has seen growth slump amid a blow-out of the fiscal and current account deficits, leading to a provisional agreement with the International Monetary Fund for a $6 billion bailout last month.
The finance ministry said the Economic Coordination Committee (ECC) of the Cabinet, a top decision-making body headed by de facto finance minister Abdul Hafeez Shaikh, gave the green light for the fund.
"In order to stabilise the stock market of the country, the ECC approved the proposal ... to issue sovereign guarantee amounting to 20 billion rupees for investment in National Investment Trust (NIT)-State Enterprise Fund," the ministry said in a statement.
The ministry did not explain how the fund would work but Pakistan set up a similar stocks-supporting vehicle after the 2008 financial crisis when the valuation of local equities nose-dived.
Analysts say the fund is expected to invest in government-owned entities and would be activated if those stocks were to decline in value.
Pakistan is expected to confirm the IMF loan agreement in coming months, which has in the past also been a trigger for stock market rallies.
However, the economy faces strong headwinds with Prime Minister Imran Khan this week saying Pakistan faced an "unprecedented economic crisis". nL8N23544V
Khan's government forecast growth of 4% for next financial year ahead of an austerity budget that is meant to reassure the IMF that Pakistan is serious about tackling some of the structural issues that have led to boom-and-bust cycles.
Saad Hashemy, chief economist at Topline Securities, said the fund would likely help improve market sentiment.
"It indicates a bottom for some key stocks that are expected to be part of the fund," he said.
($1 = 149.5300 Pakistani rupees)
(Writing by Drazen Jorgic)