Moody’s
As the nation’s funding choices are unknown beyond June, Moody’s Investors Service warned that Pakistan might collapse without an International Monetary Fund (IMF) bailout, according to Bloomberg on Tuesday.
According to Grace Lim, a sovereign analyst with the Singapore-based ratings agency, “We believe that Pakistan will meet its external payments for the remainder of this fiscal year ending in June.”
“Pakistan’s finance choices, nevertheless, remain rather unknown beyond June. Given its extremely low reserves, Pakistan might fail without an IMF plan.
Pakistan is still working with the Washington-based lender to restart its bailout programme, which has been stopped at the ninth review since November of last year.
Numerous initiatives, such as a floating currency rate, increased taxes, and an increase in energy prices, have not been successful in persuading the IMF to continue the bailout.
IMF and sovereign wealth funds in the future
The IMF instead reaffirmed that it is collaborating with Pakistani authorities to complete the ongoing ninth review “once the necessary financing is in place and the agreement is finalised.”
According to Pakistani authorities, Saudi Arabia and the United Arab Emirates have agreed to provide a total of $3 billion, which means the country has almost half of the funding it needs.
The funds have not yet been placed in the nation’s central bank, and as a result, the state of the nation’s official foreign exchange reserves is still shaky.
The perception of a default risk and the downgrading by foreign rating agencies reflect the economic situation in Pakistan, which has also had to deal with significant political unrest and repeated changes in senior leadership.
involvement with IMF past June
According to Lim, continuing a relationship with the IMF through June would encourage additional financing from other multilateral and bilateral partners, thus lowering the risk of default.
According to S&P Global Ratings, Pakistan’s gross external finance needs as a percentage of current-account revenues plus useable reserves are forecast to increase from 133% in fiscal year 2023 to 139.5% in fiscal year 2024.
Bloomberg cited Andrew Wood, a sovereign analyst at S&P in Singapore, as stating that “we consider the IMF programme to be a foundation for important fiscal policy reforms.” “Agreement on the current review cycle could also help build more trust among other Pakistan-related bilateral and multilateral lenders.”
In the meanwhile, Pakistan on Monday asked the IMF board for help to resolve the impasse around the renewal of the $6.5 billion loan programme since the delay is costing the country dearly in the form of economic and reputational damage.
Ishaq Dar, the finance minister, and Bahador Bijani, the IMF executive director, met virtually.Dar requested his assistance to persuade the IMF management to sign a staff-level agreement with Pakistan.
