KARACHI
\nPakistan\u2019s agreement with the International Monetary Fund (IMF) for a $3 billion stand-by arrangement (SBA) will provide some relief for its strained public finances, but the country faces significant hurdles to sustain economic stability and growth, Moody\u2019s Investors Service and Fitch said on Monday.
\n\u201cPakistan will require significant additional financing besides the IMF disbursements to meet its debt maturities and finance an economic recovery,\u201d said Krisjanis Krustins, director of sovereigns for APAC at Fitch.
\n\u201cWhile the IMF likely sought and received assurances for such financing, there is a risk that this could prove insufficient, particularly if current account deficits widen again.\u201d
\nThe IMF deal, which is subject to approval by the fund\u2019s executive board, will support Pakistan\u2019s efforts to implement reforms that will bolster its macroeconomic resilience over the longer term, Moody\u2019s said in an analyst report.
\n\u201cThe approval of the SBA would moderately alleviate Pakistan\u2019s government liquidity risk in the next few months, as a disbursement of IMF financing would likely also catalyse financing from other bilateral and multilateral partners,\u201d Moody\u2019s analyst Grace Lim said.
\nHowever, the rating agency cautioned that the government\u2019s ability to maintain reform momentum, especially revenue-raising measures, and secure external financing will be tested by political and social pressures ahead of elections due by October 2023.
\n\u201cPakistan\u2019s government liquidity risks remain very high,\u201d Lim said. \u201cIt is uncertain that the Pakistani government will be able to secure full $3 billion of IMF financing during the nine-month SBA program.\u201d
\nPakistan\u2019s economy has been battered by the coronavirus pandemic, floods, high inflation and social unrest.
\nThe country\u2019s foreign exchange reserves are very low at $3.5 billion as of June 16, while its external debt repayments will remain high for the next few years, with about $25 billion due in fiscal 2024.
\n\u201cWhile the IMF SBA alleviates some of the near-term pressures on Pakistan, there is still high uncertainty around Pakistan\u2019s external funding prospects for the rest of fiscal 2024 and later. Pakistan\u2019s government liquidity risks remain very high,\u201d the analyst said.
\nIn the near-term the economic activity in Pakistan would likely remain subdued.
\n\u201cOngoing economic hardships because of the repercussions from the floods, compounded by worsening social tensions, would continue to drag economic activity. Elevated external liquidity pressures, limited fiscal space, lagged effects of the central bank policy rate increases and high inflation would also constrain household and government spending, as well as business investment,\u201d the analyst added.
\nThe IMF deal will help unlock financing from other bilateral and multilateral partners, easing some of the near-term pressures on Pakistan, Moody\u2019s said.
\nThough, the country will need a longer-term external financing plan to meet its large financing needs for the next few years, which may require another IMF program after the elections.
\n\u201cThis may come in the form of another IMF programme. However, whether Pakistan will join another IMF programme may only become clear after elections.\u201d
\nNegotiations for any future IMF program would also take some time, even if they succeed,\u201d Lim said.
\n\u201cUntil a new program is agreed, Pakistan\u2019s ability to secure loans from other bilateral and multilateral partners on an on-going basis over the longer-term will be severely constrained.\u201d
\nLast month, Moody\u2019s had warned that Pakistan could default without an IMF bailout as its financing options beyond June were uncertain.
\nThus, reaching the SBA turned out to be a huge achievement for the government, with the stock market making historic day-on-day gains and the currency market stabilising after months.
\nAccording to the IMF, the staff-level agreement is subject to approval by the IMF Executive Board, with its consideration expected by mid-July.<\/p>\n","protected":false},"excerpt":{"rendered":"
KARACHI Pakistan\u2019s agreement with the International Monetary Fund (IMF) for a $3 billion stand-by arrangement (SBA) will provide some relief for its strained public finances, but the country faces significant hurdles to sustain economic stability and growth, Moody\u2019s Investors Service and Fitch said on Monday. \u201cPakistan will require significant additional financing besides the IMF disbursements […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"class_list":{"0":"post-341287","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-business"},"yoast_head":"\n