Moody’s Investor Service warned that Pakistan could potentially default without receiving an IMF bailout package, as it faces uncertainty with financing options beyond June. Sovereign analyst Grace Lim, who works at the ratings company’s Singapore office, has stated that Pakistan will likely meet its external payments for the rest of the current financial year, which concludes in June.
• IMF bailout crucial for Pakistan’s financial stability, says Moody’s
• Pakistan’s financing options uncertain beyond June, warns Moody’s
• Political tensions threaten Pakistan’s IMF bailout program
• Pakistan faces default risk due to weak reserves, says Moody’s
• S&P Global Ratings: Pakistan’s financing needs to rise in 2024
However, the financing options available to Pakistan after June remain uncertain. Without an IMF bailout, there is a high probability of default due to the country’s weak reserves. Pakistan needs help to revive a $6.5 billion bailout program from the IMF, which stopped after the federal government failed to meet some loan conditions.
Political Tensions & IMF Bailout Program
Moreover, political tensions in the country, as the elections are set to take place this year, 2023, are adding to the risk of a delay in the loan. Lim has recommended that engaging with the IMF beyond June could result in additional financing from other multilateral and bilateral partners, which could decrease the risk of default.
However, it is important to note that Pakistan’s foreign-exchange reserves remain extremely low at $4.5 billion and sufficiently cover only about one month of imports.
According to S&P Global Ratings, Pakistan’s gross external financing needs are calculated to rise to 139.5% in the fiscal year 2024 from 133% in 2023 as a proportion of current-account receipts plus usable reserves.
Sovereign analyst Andrew Wood of S&P in Singapore has also stated that an IMF program would serve as a foundation for important fiscal policy reforms. By agreeing to the current review cycle, other bilateral and multilateral lenders may be more inclined to invest in Pakistan, thus instilling greater confidence.