Considerable risks around Pakistan’s ability to secure required financing, Moody’s after IMF talks

The IMF mission concluded its visit to Pakistan on 9 February as part of the ninth review of Pakistan’s IMF Extended Fund Facility (EFF) programme. While the IMF noted that considerable progress was made during the visit on policy measures to address domestic and external imbalances, there is no certainty yet on whether, and if so when, IMF financing will be forthcoming.

Pakistan’s external position is under significant stress, following delays in securing official sector financing which have driven a continued decline in Pakistan’s foreign exchange reserves. The reserves have dwindled to $2.9 billion in the week ending 3 February, according to data from the State Bank of Pakistan, sufficient to cover less than one month of imports.

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The financing from IMF, which is likely to also catalyse funding from other multilateral and bilateral partners, is crucial to alleviate Pakistan’s liquidity stresses. Revenue-raising measures will likely be among the prior actions that IMF requires before releasing the next tranche of financing. However, elevated social and political risks compound the government’s difficulty in implementing reforms, including revenue-raising measures, that would improve the country’s fiscal position and liquidity position.

Pakistan’s government liquidity and external vulnerability risks are elevated, and there remains considerable risks around Pakistan’s ability to secure required financing to fully meet its needs for the next few years”