MOODY’S WARNS PAKISTAN COULD DEFAULT WITHOUT IMF BAILOUT: REPORT
A recent report by a top ratings’ agency suggests that the availability of funds for Pakistan beyond June is highly uncertain.
As per Moody’s Investors Service warning reported by Bloomberg today, Pakistan could face the risk of a default without an International Monetary Fund (IMF) bail out as it has uncertain financial options beyond June.
According to Grace LIM from Singapore’s ratings company who responded via email; Pakistan will be able to make all its external payments until the current fiscal year ending on June as reported by Bloomberg.
Although it is uncertain, Pakistan may have to explore other financing options beyond June as having very weak reserves means it might end up defaulting if there isn’t any support from the IMF program.
Pakistan’s discussions with the Washington-based lender continue as it seeks to restart its bailout program which has been held up at the ninth review since November of last year.
The IMF remains unconvinced about resuming its bailout efforts despite trying measures like establishing a floating exchange rate or increasing tax rates alongside tariff hikes.
Working alongside Pakistani officials towards obtaining sufficient funds and reaching an agreement on all fronts should enable finalization of outstanding ninth review, says IMF.
After an announcement from Pakistani officials revealing Saudi Arabia and UAE were willing to provide a combined total of $3 billion in financing—nearly 50% of Pakistan’s necessary finances have been secured.
That being said, the amounts have not yet been transferred to Pakistan’s central bank and their official foreign exchange reserves are still standing on a precarious ground.
The recent months have not been easy for this nation’s economy as it is facing risks of defaulting along with downgrading from international ratings agencies, and to add to this mix, there is continuous change in key leadership position and political instability.
Engagement with IMF beyond June
If we decide to continue working with the IMF beyond June we may be able to access additional funding from other multilateral and bilateral partners which would decrease our risk of default.
The trend shows that according to the latest S&P Global Ratings’ analysis cited by Bloomberg Report Pakistan will require more financing compared with its existing resources as the ratio between gross foreign funding requirements and its total available resources (current account receipts and secure reserves) may rise from roughly 133 percent this year-end approximately up to around 139.5 % at end-fiscal-year twenty-four.
Bloomberg cited Andrew Wood of S&P in Singapore who stated that the IMF program serves as a foundation for essential fiscal policy changes, and agreement on the present evaluation period has the potential to strengthen trust amongst various bilateral and multilateral loan providers in regard to lending money to Pakistan.
It was reported back in March by Bloomberg economists that under a bailout scheme, it was possible for funding from the IMF to be made available to Pakistan by June; but highlighted concern over possible default should no funds be forthcoming.
Pakistan can expect IMF to deliver the remaining $2.6 billion in aid from its ongoing bailout program by June since they have met most of their conditions for it, according to Bloomberg economists Anger Shula and Abhishek Gupta who wrote this some time ago.
Pakistan is not included in the agenda for any of the upcoming meetings of IMF Executive Board till May 17 as per Business Recorder’s report on Tuesday.
Pakistan is absent from any discussion in the upcoming meetings of IMF Executive Board which are slated for May 11, and 15 with another meeting on May 17 in 2023 unless they achieve success in their ninth review.
