By Staff Reporter
ISLAMABAD: Pakistan’s new International Monetary Fund (IMF) program will boost its funding prospects, but the government’s ability to implement reforms will be crucial to securing financing over the next three years, Moody’s Ratings said on Tuesday.
Pakistan and the IMF, last week, reached a staff-level agreement for a new $7 billion loan program, providing much-needed relief for the cash-strapped government of Prime Minister Shehbaz Sharif.
The agreement, which needs approval by the IMF’s executive board, follows months of negotiations and is seen as crucial for Pakistan’s teetering economy. The deal builds upon the economic progress achieved under a previous short-term agreement.
Moody’s said the new IMF program will provide a credible source of financing from the Fund and also catalyze funding from other bilateral and multilateral partners to meet Pakistan’s external financing needs.
However, the ratings agency warned that sustaining reform implementation will be essential to unlocking financing and easing government liquidity risks.
“The government’s ability to sustain reform implementation will be key to allowing Pakistan to continually unlock financing over the duration of the IMF program, leading to a durable easing of government liquidity risks,” Moody’s said.
“The new IMF EFF comes with conditions of far-reaching reforms, such as measures to broaden the tax base and removing exemptions and making timely adjustments of energy tariffs to restore the energy sector viability.”
Other measures include improving state-owned enterprises’ management and privatization, phasing out agricultural support prices and associated subsidies, advancing anti-corruption, governance and transparency reforms, and gradually liberalizing trade policy.
“A resurgence of social tensions on the back of high cost of living – which may increase because of higher taxes and future adjustments to energy tariffs – could weigh on reform implementation,” Moody’s added.
“Moreover, risks that the coalition government may not have a sufficiently strong electoral mandate to continually implement difficult reforms remain. According to an IMF report published in May, Pakistan’s external financing needs is about $21 billion for fiscal 2025 (ending June 2025) and about $23 billion for fiscal 2026-27. Pakistan’s foreign exchange reserves of $9.4 billion as of 5 July is well below its needs.”
Moody’s stressed that Pakistan’s external position remains fragile, with high external financing requirements over the next three to five years.
“The country is vulnerable to policy slippages. Weak governance and high social tensions can compound the government’s ability to advance reforms, jeopardizing its ability to complete reviews under the IMF programme and unlock external financing.”
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