Moody’s, Fitch see lingering risks despite Pakistan-IMF deal: report

Despite Pakistan and the International Monetary Fund (IMF) reaching a Stand by Arrangement (SBA) last week, Moody’s Investors Service and Fitch Ratings see lingering risks to Pakistan’s financing abilities as the country stares at a $25 billion debt repayment wall in the year starting July, reported Bloomberg on Monday.

Krisjanis Krustins, director of sovereigns for APAC at Fitch, said Pakistan will require significant additional financing besides the IMF disbursements to meet its debt maturities and finance an economic recovery.

“While the IMF likely sought and received assurances for such financing, there is a risk that this could prove insufficient, particularly if current account deficits widen again,” Krustins was quoted as saying by Bloomberg.

Pakistan has moved to meet a number of conditions of the IMF, which include hiking taxes, raising its key interest rate to an all-time high and cutting spending to secure the initial pact with the IMF, which is subject to approval by the IMF Executive Board.

The latest programme, however, sent a positive wave through the markets, with stocks surging the most on Monday and dollar bonds extending their best run ever.

Moody’s analyst Grace Lim told Bloomberg that “it is uncertain that the Pakistani government will be able to secure full $3 billion of IMF financing during the nine-month stand-by arrangement program”.

The $25 billion of debt repayments includes both principal and interest, and is about seven times Pakistan’s foreign exchange reserves, according to Moody’s.

The government’s commitment to continually implement reforms will be tested as it goes into elections due by October 2023, said the analyst.

The country had previously clinched a $1.1 billion loan in August, only to have the program halted due to Islamabad’s failure to meet some conditions.

“Whether Pakistan will join another IMF programme may only become clear after elections,” said Lim. “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.”

In a major breakthrough on Friday, the IMF announced that its staff and Pakistani authorities reached an agreement on policies to be supported by a $3-billion, nine-month SBA.

The staff-level agreement is subject to approval by the IMF Executive Board, with its consideration expected by mid-July.

“The new SBA builds on the authorities’ efforts under Pakistan’s 2019 EFF-supported programme which expires end-June,” Nathan Porter, IMF Mission Chief to Pakistan, was quoted as saying in the press release on the day the Extended Fund Facility expired.