Pakistan's capacity to repay strengthened: IMF

The IMF ninth review and 2015 Article IV consultations notes that Pakistan's capacity to repay the Fund has been strengthened by supportive policies, improved foreign exchange buffers on the back of strong remittances and low oil prices, and a lower budget deficit. However, the materialisation of risks to the economic outlook could erode these gains, particularly in the context of the Fund's exposure increasing further with new EFF program disbursements.
Pakistan's programme financing needs (estimated at US $7.2 billion or 3.2 percent of GDP) are fully covered for the current fiscal year (the remainder of the program). Disbursements from multilateral and bilateral partners (including about US $2.6 billion from the World Bank and the ADB) are expected to cover most of the financing needs.
Pakistan has access to international markets, which reduces financing risks going forward. The reserves' situation has continued to improve to cover almost four months of imports, but further accumulation is needed to meet adequacy norms measured by the Fund's ARA metric. The Fund's exposure to Pakistan increased with the disbursement made upon approval of the eighth review, reaching SDR 3.24 billion (about US $4.5 billion and 7.0 percent of total external debt) by end September 2015.
According to the review external vulnerabilities include a protracted period of slower growth in key advanced and emerging market economies (including in China and the GCC), hurting exports and remittances. Continued appreciation of the US dollar combined with limited variation in the rupee's exchange rate could further erode export competitiveness. Exports, and consequently growth, will be adversely affected further if Pakistan falls behind its competitors in securing favourable treatment in major markets.
Ongoing legal challenges to electricity surcharges and the still challenging political and security conditions could affect economic activity and undermine fiscal consolidation efforts. Conversely, fast implementation of the China-Pakistan Economic Corridor projects and an improvement in the security situation could boost investment and growth, and removal of international trade and financial sanctions against Iran could have a positive impact on energy supply to Pakistan.