By Staff Reporter
KARACHI: Pakistan’s agreement with the International Monetary Fund (IMF) for a $3 billion stand-by arrangement will provide some relief for its strained public finances, but the country faces significant hurdles to sustain economic stability and growth, Moody’s Investors Service said on Monday.
The IMF deal, which is subject to approval by the fund’s executive board, will support Pakistan’s efforts to implement reforms that will bolster its macroeconomic resilience over the longer term, Moody’s said in an analyst report.
However, the rating agency cautioned that the government’s ability to maintain reform momentum and secure external financing will be tested by political and social pressures ahead of elections due by October 2023.
“Pakistan’s government liquidity risks remain very high,” Grace Lim, an analyst at Moody’s, said. “It is uncertain that the Pakistani government will be able to secure full $3 billion of IMF financing during the nine-month SBA program.”
Pakistan’s economy has been battered by the coronavirus pandemic, floods, high inflation and social unrest. The country’s foreign exchange reserves are very low at $3.5 billion as of June 16, while its external debt repayments will remain high for the next few years, with about $25 billion due in fiscal 2024, Moody’s said.
The IMF deal will help unlock financing from other bilateral and multilateral partners, easing some of the near-term pressures on Pakistan, Moody’s said.
Though, the country will need a longer-term external financing plan to meet its large financing needs for the next few years, which may require another IMF program after the elections.
“Negotiations for any future IMF program would also take some time, even if they succeed,” Lim said. “Until a new program is agreed, Pakistan’s ability to secure loans from other bilateral and multilateral partners on an on-going basis over the longer-term will be severely constrained.”
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