Moody’s Investor Service has expressed concerns over Pakistan’s ability to meet its financial obligations beyond June 2023 without an International Monetary Fund (IMF) program in place.
The warning comes as Pakistan’s financing options appear uncertain. Its foreign exchange reserves remain at a critically low level of $4.5 billion, only sufficient to cover approximately one month of imports.
The country’s coalition government has been facing difficulties reviving a $6.5 billion IMF bailout program that had stalled due to the government’s failure to meet certain loan conditions. Political tensions are rising ahead of elections scheduled for this year, increasing the risk of further delays in securing the loan. In addition, former Prime Minister Imran Khan has shown no signs of backing down against the government, further complicating the situation.
Pakistan’s dollar bonds due in 2031 were indicated at 34.58 cents on the dollar on Tuesday, near their lowest level since November. Meanwhile, the Pakistani rupee has been trading near a record low.
Grace Lim, a sovereign analyst at Moody’s in Singapore, explained in an email response that engaging with the IMF beyond June would likely help secure additional financing from other multilateral and bilateral partners, thus reducing the risk of default.
S&P Global Ratings estimates that Pakistan’s gross external financing needs, as a proportion of current account receipts plus usable reserves, will increase to 139.5% in the fiscal year 2024, up from 133% in 2023. Andrew Wood, a sovereign analyst at S&P in Singapore, emphasized the importance of the IMF program as a foundation for crucial fiscal policy reforms. He also noted that reaching an agreement on the current review cycle could boost confidence among other bilateral and multilateral lenders to Pakistan.
