Moody’s casts uncertainty over loan

Says Pakistan’s government liquidity and external vulnerability risks are elevated

KARACHI:

While general consensus suggests Pakistan is poised to win back the International Monetary Fund (IMF) loan programme, Moody’s Investors Service remains uncertain and sees high risk “around Pakistan’s ability to secure required financing to fully meet its needs for the next few years.”

“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,” the global rating agency said in a statement on Friday.

It made the observation after the IMF mission concluded its 10-day long visit to Pakistan on February 9, 2023, as part of its ninth review of Pakistan’s IMF Extended Fund Facility (EFF) programme.

“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,” it said.

The reserves have dipped to $2.9 billion, “sufficient to cover less than one month of imports,” the agency added. 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 the IMF requires before releasing the next tranche of financing, it said.

Elevated social and political risks, however, compound the government’s difficulty in implementing reforms, including revenue-raising measures that would improve the country’s fiscal and liquidity position.

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

Taking to Twitter, Former SBP acting governor Murtaza Syed said, “For an IMF team to leave town without an agreement is not that uncommon in programme reviews. It has happened before in other countries. It has also happened before in Pakistan. There are often some differences that remain or steps that need to be taken before an agreement can be inked.”

“The key issue is how large the differences that remain are. Sometimes, they are not that significant and just need a few days to settle. In these cases, the discussions can be concluded virtually and an agreement reached fairly soon after the mission has returned to Washington DC,” said Syed, an official who has also previously served at the IMF.

Some finite time in reaching an agreement should not be too big an issue. “But if it drags on for say longer than a month or so, then things get more difficult as our FX (foreign exchange) reserves have reached a critical level,” he said.

Meanwhile, the Pakistani currency maintained an uptrend on the third consecutive working day on Friday. The rupee extended regains by 0.46% (or Rs1.21) to a 10-day high at Rs269.28 against the US dollar in the interbank market.

Published in The Express Tribune, February 11^th, 2023.

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