New York July 3 2023: Moody’s Investors Service and Fitch Ratings see lingering risks to Pakistan’s financing abilities as the country stares at a $25 billion debt repayment wall in the year starting July, more than the initial approval it secured recently for a $3 billion loan program.
“Pakistan will require significant additional financing besides the IMF disbursements to meet its debt maturities and finance an economic recovery,” said Krisjanis Krustins, director of sovereigns for APAC at Fitch. “While 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.”
The South Asian nation increased taxes, hiked its key interest rate to an all-time high and cut spending to secure the initial pact with the IMF, which is still subject to approval by the IMF Executive Board. The latest program sent a positive wave through the markets, with stocks surging the most in 15 years on Monday and dollar bonds extending their best run ever.
“It is uncertain that the Pakistani government will be able to secure full $3 billion of IMF financing during the nine-month stand-by arrangement program,” said Grace Lim, an analyst with Moody’s in Singapore. The government’s commitment to continually implement reforms will be tested as it goes into elections due by October 2023, she said.
The country had previously clinched a $1.1 billion loan in August, only to have the program halted due to Islamabad’s failure to meet some conditions. The $25 billion of debt repayments includes both principal and interest, and is about seven times Pakistan’s foreign exchange reserves, according to Moody’s.
“Whether Pakistan will join another IMF program may only become clear after elections,” said Lim. “Until a new program is agreed, Pakistan’s ability to secure loans from other bilateral and multilateral partners on an on-going basis over the longer-term will be severely constrained.”