ISLAMABAD: The government’s liquidity risks remain high despite the International Monetary Fund (IMF) staff-level agreement, says Moody’s Investors Services (Moody’s).
The rating agency in its latest brief on Pakistan stated that on 29 June, Pakistan (Caa3 stable) reached a staff-level agreement with the IMF over a $3 billion nine-month Stand-By Agreement (SBA) after an IMF Extended Fund Facility programme expired at the end of June.
The agreement is subject to the approval of the IMF’s executive board, which is expected to reach a decision by mid-July. If approved this month, the agreement will expire in April 2024.
IMF deal to support macroeconomic stability: Moody’s
The SBA, if approved, will alleviate some near-term pressure on government liquidity, it added. Pakistan had very low foreign-exchange reserves of around $3.5 billion as of 16 June, sufficient to cover less than one month of imports and well below the country’s external financing needs for the current fiscal year (ending June 2024) and the next few years.
We estimate that around $25 billion worth of repayments (principal and interest) fall due in the current fiscal year. The new IMF financing on its own will not be enough to allow Pakistan to meet all its external debt repayments.
However, an IMF disbursement is likely to catalyze financing from other bilateral and multilateral partners, which will be as critical in aiding Pakistan meet its financing needs.
“We expect government liquidity risks to remain high, even if the new SBA is approved. It is uncertain whether Pakistan will secure the full $3 billion of IMF financing during the nine-month program. The government’s commitment to continually implement reforms, particularly revenue-raising measures, will also be tested as it prepares for elections due by October 2023.”
Pakistan will need a longer-term financing plan to meet its large external financing needs over the next few years. Such a plan could take the form of another IMF programme that would be in place for a few years, although this could only become clear after the upcoming elections.
Negotiations over any future IMF programme would also take time, even if they succeed. Until a new programme is agreed, Pakistan’s ability to secure loans from other bilateral and multilateral partners will be severely constrained beyond the period of this new SBA, Moody’s added.
Copyright Business Recorder, 2023