Global rating agency Fitch on Monday upgraded Pakistan\u2019s long-term foreign currency issuer default rating (IDR) to \u2018CCC\u2019 from \u2018CCC-\u2019, citing improved external liquidity and funding conditions following the staff-level agreement with the International Monetary Fund (IMF) on a nine-month Stand-by Arrangement (SBA) in June.<\/p>\n
Pakistan had secured a badly-needed $3bn short-term financial package from the IMF earlier this month, giving the economy a much-awaited respite as it teeters on the brink of default.<\/p>\n
The executive board of the IMF will meet on July 12 to review the $3 billion Stand-by Arrangement (SBA) for Pakistan.<\/p>\n
In a statement issued today, Fitch said: \u201cWe expect the SLA to be approved by the IMF board in July, catalysing other funding and anchoring policies around parliamentary elections due by October.\u201d<\/p>\n
However, it said the programme\u2019s implementation and external funding risks remain due to a \u201cvolatile political climate and large external financing requirement\u201d.<\/p>\n
Talking about IMF-driven reforms taken by the government, the agency noted that Pakistan had recently taken measures to address shortfalls in its revenue collection, energy subsidies and policy inconsistent with a market-determined exchange rate, including import financing restrictions.<\/p>\n
It said these issues had held up the last three reviews of Pakistan\u2019s previous IMF programme, before its expiry in June.<\/p>\n
\u201cMost recently, the government amended its proposed budget for the fiscal year ending June 2024 (FY24) to introduce new revenue measures and cut spending, following additional tax measures and subsidy reforms in February. The authorities appeared to abandon exchange-rate management in January 2023, although guidelines on prioritising imports were only removed in June.\u201d<\/p>\n
On risks regarding the implementation of the programme, Fitch said Pakistan had an \u201cextensive record of going off-track on its commitments to the IMF\u201d.<\/p>\n
\u201cWe understand the government has already made all the required policy actions under the SBA. Nevertheless, there is still scope for delays and challenges to implementation as well as new policy missteps ahead of the October elections and uncertainty over the post-election commitment to the programme,\u201d it stated.<\/p>\n
The New York-based agency \u2014 one of the three major global rating agencies \u2014 said IMF\u2019s board approval would unlock an immediate disbursement of $1.2 billion, with the remaining $1.8 billion scheduled after reviews in November and February 2024.<\/p>\n
It added that Saudi Arabia and the United Arab Emirates have committed another $3 billion in deposits, and the authorities expected $3-$5 billion in other new multilateral funding after the IMF agreement.<\/p>\n
\u201cThe SBA should also facilitate disbursement of some of the $10 billion in aid pledges made at the January 2023 flood relief conference, mostly in the form of project loans (USD2 billion in the budget).\u201d<\/p>\n
On Pakistan\u2019s overall funding target ambitions, the agency said authorities expected $25 billion in gross new external financing in FY24 against $15 billion in public debt maturities, including $1 billion in bonds and $3.6 billion to multilateral creditors.<\/p>\n
\u201cThe government funding target includes $1.5 billion in market issuance and $4.5 billion in commercial bank borrowing, both of which could prove challenging, although some of the loans not rolled over in FY23 could now return,\u201d it said, adding that $9 billion in maturing deposits from China, Saudi Arabia and the UAE would likely be rolled over as in FY23.<\/p>\n
Fitch further stated that Pakistan\u2019s current account deficit (CAD) had narrowed because of the earlier restrictions on imports and the availability of foreign exchange, tighter fiscal and economic policies, measures to limit energy consumption and lower commodity prices.<\/p>\n
\u201cPakistan posted current account surpluses in March-May 2023, and we forecast a CAD of about $4 billion (1 per cent of GDP) in FY24, after $3 billion in FY23 and over $17 billion in FY22. Our forecast CAD is lower than the $6 billion in the budget, on the assumption that not all of the planned new funding will materialise, constraining imports.\u201d<\/p>\n
\u201cThe CAD could widen more than we expect, given continued reports of import backlogs, the dependence of the manufacturing sector on foreign inputs, and reconstruction needs after last year\u2019s floods,\u201d it said.<\/p>\n
However, the agency said currency depreciation could limit this increase while remittance inflows could recover after \u201cpartly switching to unofficial channels to benefit from more favourable parallel market exchange rates\u201d.<\/p>\n","protected":false},"excerpt":{"rendered":"
Global rating agency Fitch on Monday upgraded Pakistan\u2019s long-term foreign currency issuer default rating (IDR) to \u2018CCC\u2019 from \u2018CCC-\u2019, citing improved external liquidity and funding conditions following the staff-level agreement with the International Monetary Fund (IMF) on a nine-month Stand-by Arrangement (SBA) in June. Pakistan had secured a badly-needed $3bn short-term financial package from the […]<\/p>\n","protected":false},"author":2,"featured_media":342402,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[3653],"class_list":{"0":"post-342396","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-national","8":"tag-fitch"},"yoast_head":"\n