London July 16 2024: On 12 July, the International Monetary Fund (IMF) and Pakistani authorities reached a staff-
level agreement on a 37-month Extended Fund Facility Arrangement (EFF) of about $7 billion. The agreement is subject to approval by the IMF Executive Board, although no date has been set for a vote.
If approved, which we expect is likely, the new IMF programme will improve Pakistan’s (Caa3 stable) funding prospects, states Moody’s.
The programme will provide credible sources of financing from the IMF and catalyze funding from other bilateral and multilateral partners to meet Pakistan’s
external financing needs.
However, the government’s ability to sustain reform implementation will be key to allowing Pakistan to continually unlock financing over the duration of the IMF programme, leading to a durable easing of government liquidity risks.
The new IMF EFF comes with conditions of far-reaching reforms, such as measures to
broaden the tax base and removing exemptions and making timely adjustments of energy tariffs to restore the energy sector viability. Other measures include improving state-owned enterprises’ management and privatization, phasing out agricultural support prices and associated subsidies, advancing anti-corruption, governance and transparency reforms, and gradually liberalizing trade policy.
A resurgence of social tensions on the back of high cost of living – which may increase because of higher taxes and future adjustments to energy tariffs – could weigh on reform implementation.
Moreover, risks that the coalition government may not have a sufficiently
strong electoral mandate to continually implement difficult reforms remain.
According to an IMF report published in May, Pakistan’s external financing needs is about $21 billion for fiscal 2025 (ending June 2025) and about $23 billion for fiscal 2026-27. Pakistan’s foreign exchange reserves of $9.4 billion as of 5 July is well below its needs.
Pakistan’s external position remains fragile, with high external financing requirements over the next three to five years. The country is vulnerable to policy slippages. Weak governance and high social tensions can compound the government’s ability to advance reforms,
jeopardizing its ability to complete reviews under the IMF programme and unlock external financing.
