In past days, Fitch Ratings downgraded Pakistan from stable to negative which had adverse effects on country’s stock exchange and overall image. Now, Moody’s Investors Service and Fitch Ratings both anticipate Pakistan to get a $1.2 billion bailout from the International Monetary Fund (IMF), which might assist in relieving pressure on the country’s currency and FX reserves.
This will release significant more finance from the IMF and other multilateral and bilateral sources, as well as provide a big boost to market confidence.
Furthermore, Moody’s anticipates the IMF to disburse the loan in the third quarter, according to Grace Lim, a sovereign analyst with the Singapore-based ratings company.
However, government may find challenging to implement revenue-raising initiatives which may not result in achieving IMF bailout program. Lim said, “Pakistan’s ability to complete the current program and maintain a credible policy path that supports further financing remains highly uncertain, while elevated inflation and a higher cost of living are adding to social and political risks.”
The statement was issued after last week’s action by Fitch Ratings of lowering Pakistan’s outlook from stable to negative, citing the country’s significant deterioration in external liquidity and financing conditions since the beginning of 2022.
Moreover, in challenging economic and political environment, Fitch sees significant risks to the implementation of the IMF program and Pakistan’s future access to finance after the program expires in June 2023.
Economic analysts have repeatedly emphasized the urgency of the IMF bailout for Pakistan, which is still grappling with various economic challenges, including dwindling foreign exchange reserves, growing debt payments, and a sinking local currency that has driven inflation to more than 21 percent.
IMF staff and the Pakistani authorities have reached a staff level agreement on policies to complete the combined 7th and 8th reviews of Pakistan’s Extended Fund Facility (EFF). The agreement is subject to approval by the IMF’s Executive Board. However, continued political and economic turmoil has exacerbated investor fears, particularly regarding the government maintaining its reform’s agenda in order to successfully proceed in the IMF program.