Fitch Ratings and Moody’s Investors Service on Monday warned of continued threats to Pakistan’s financial sustainability, despite the country receiving a much-needed $3 billion lifeline from the International Monetary Fund (IMF) over the weekend.
Pakistan has $25 billion of repayments due in FY24, says Moody’s rating agency
Pakistan signed a short-duration (nine-month) worth $3 billion loan programme with the IMF last week, following the revival of the $7 billion programme that was officially ending prematurely the same day.
The programme is expected to make the required foreign exchange available to reopen imports, help listed companies to gradually ramp up the partially closed production, and reenergize economic activities in the country.
The new programme has also signalled other donor agencies and friendly countries to extend new financing to Islamabad as they pledged $9 billion at a Geneva meeting in January 2023.
But the two global rating agencies reminded of continued risks to the South Asian economy as the government stares at a $25 billion debt repayment hurdle in the year starting July.
“Pakistan will require significant additional financing besides the IMF disbursements to meet its debt maturities and finance an economic recovery,” Krisjanis Krustins, director of sovereigns for APAC at Fitch, told Bloomberg.
“While the IMF likely sought and received assurances for such financing, there is a risk that this could prove insufficient, particularly if current account deficits widen again.”
In order to secure the initial agreement with the IMF, Pakistan had to increase taxes, cut spending, and raise its primary interest rate to a historic peak.
Although the initial agreement was welcomed by the markets, causing stock to surge significantly and dollar bonds to enjoy their best run, it is still awaiting approval by the IMF Executive Board.
Grace Lim, an analyst at Moody’s in Singapore, expressed uncertainty about Pakistan’s ability to secure the complete IMF financing during the standby period.
“It is uncertain that the Pakistani government will be able to secure full $3 billion of IMF financing during the nine-month stand-by arrangement program,” Lim told Bloomberg.
The government’s commitment to continually implement reforms will be tested as it goes into elections due by October 2023, she said.
Pakistan had previously secured a $1.1 billion loan in August, which was subsequently halted due to Islamabad’s failure to comply with some of the stipulated conditions.
The towering $25 billion debt repayment includes both principal and interest, which is nearly seven times Pakistan’s foreign exchange reserves, as per Moody’s.
Lim said that its would only be clear after elections whether the country will be able to join another IMF program.
“Until a new program is agreed, Pakistan’s ability to secure loans from other bilateral and multilateral partners on an ongoing basis over the longer term will be severely constrained,” she warned.
