The International Monetary Fund’s (IMF) recent acceptance of a $1.1 billion loan disbursement and programme revival has been described as a “credit positive” for Pakistan by Moody’s Investors Service.
Previously, Moody’s Investor Service maintained Pakistan’s credit assessment at B3, which is considered a weak rating.
The IMF’s executive board conducted the seventh and eighth reviews of Pakistan’s Extended Fund Facility (EFF) on August 29 and announced an extension and increase in its loan programme for Pakistan.
According to the Fund, “the IMF financing and the additional support from bilateral partners will ease pressure on Pakistan’s dwindling foreign exchange reserves, which currently cover less than two months of imports.”
The board’s decision enables for an immediate disbursement of SDR 894 million (about US$1.1 billion), increasing the total budget support purchases under the arrangement to approximately US$3.9 billion.
After the revival of the programme, some countries are also willing to provide further financial assistance to Pakistan. Saudi Arabia has offered to roll over a $3 billion loan and supply $1 billion in oil on a deferred payment basis, while Qatar promises to invest $3 billion and the UAE $1 billion in Pakistan.
Moody’s said Pakistan will be able to fully meet its financing needs for fiscal year 2022-23.
“Based on our estimates, we expect Pakistan to require around $37-$38 billion of external financing for fiscal 2023, with $24 billion going toward external debt repayments and $13-$14 billion toward the current account deficit,” said Moody’s.
“Our baseline expectation is that Pakistan will be able to fully meet its financing needs for fiscal 2023 and the next few years, based on the assumption that Pakistan maintains engagement with the IMF over the remaining period of the EFF and steadfastly implements structural reforms to support sustainable growth,” it added.
According to the credit rating agency located in the United States, the programme will also catalyze additional finance from other bilateral and international partners.
“Nonetheless, Pakistan’s ability to complete the current EFF programme and maintain a credible policy path that supports additional financing remains uncertain amid elevated political and social risks,” it said.
According to Moody’s, political risk remains high, posing a challenge to policymakers’ stability and predictability.
“Social risks are also heightened,” according to Moody’s, as Pakistan confronts soaring inflation, that reached a multi-decade high of 27.3% in August.
According to Moody’s, the current floods would exacerbate inflationary pressures in the country, while imports will also grow.
“Recent record rainfall that has left a third of the country flooded and caused a tragic loss of lives is likely to add to inflationary pressures. At the same time, import demand for food is likely to increase, adding pressures to the current account balance. Damage to crops and infrastructure threatens fiscal slippage and complicates Pakistan’s ability to enact tax reforms and tighten spending,” it said.