By Staff Reporter
KARACHI: Pakistan may face a risk of default if it fails to secure an International Monetary Fund (IMF) bailout loan, as the country’s financing options beyond June are uncertain, Moody’s Investor Service said on Tuesday.
“We consider that Pakistan will meet its external payments for the remainder of this fiscal year ending in June,” Grace Lim, a sovereign analyst with the ratings company in Singapore, told Bloomberg newswire. “However, Pakistan’s financing options beyond June are highly uncertain. Without an IMF program, Pakistan could default given its very weak reserves.”
Moody’s warning comes when IMF Executive Board is scheduled to meet until May 17, but Pakistan’s ninth review under the Extended Fund Facility (EFF) programme is missing from the agenda.
Pakistan is currently facing challenges in resuming its $6.5 billion bailout program with a Washington-based lender. The program has stalled due to the government’s failure to fulfill certain loan conditions. Political tensions have risen ahead of this year’s elections, which could further delay the loan process. Former Prime Minister Imran Khan’s refusal to back down against the government and the powerful military is also adding to the risks.
The release of $1.1 billion under a bailout programme, which was approved in 2019, has been delayed since November, and a staff-level agreement has yet to be reached. The programme is scheduled to end in June, before the budget for the upcoming fiscal year.
On Tuesday, the country’s dollar bonds due in 2031 were indicated at 34.58 cents on the dollar, which is close to the lowest level seen since November. The rupee’s value has also been trading near a record low.
Pakistan’s foreign-exchange reserves currently stand at $4.5 billion, which is considered extremely low. She added that this amount is only sufficient to cover approximately one month of imports, indicating a fragile economic situation.
S&P Global Ratings has estimated that Pakistan’s gross external financing requirements, as a percentage of current-account receipts plus usable reserves, will increase from 133 percent in 2023 to 139.5 percent in fiscal year 2024.
“We consider the IMF program to be a foundation for important fiscal policy reforms,” said Andrew Wood, a sovereign analyst at S&P in Singapore. “Agreement on the current review cycle could also coalesce more confidence for other bilateral and multilateral lenders to Pakistan.”
The Economist Intelligence Unit (EIU) has recently published a report stating that Pakistan is expected to face a default on its external debt obligations by early 2024. This is mainly due to the limited foreign-exchange reserves to service its external debt and the conclusion of its IMF loan by the third quarter of 2023.
The EIU report has criticized Pakistan’s poor policy choices over many years and highlighted that its economy is weaker than other emerging Asian markets, including Bangladesh. Despite ongoing reforms, the report predicts that Pakistan’s economic growth will fall short of its potential in the period 2023-27.
According to the report, Pakistan needs to repay $77.5 billion in external debt between April 2023 and June 2026, with near-term debt servicing expected to amount to $4.5 billion between April and June 2023. This cash-strapped situation has raised investor concerns about the country’s debt sustainability after the conclusion of the IMF package.
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