Moody’s Fitch warns of risks despite IMF deal

According to Bloomberg, two prominent global rating agencies have cautioned that Pakistan will require much more funding than what it is receiving from the International Monetary Fund (IMF) to meet debt deadlines and finance its economic recovery.

The warning was issued by Moody’s Investors Service and Fitch Ratings, two of the top three credit rating organisations recognised by the US Securities and Exchange Commission.

According to the two organisations, Pakistan must return $25 billion in the current fiscal year to meet its debt obligations. According to Moody, the repayments include both principal and interest and amount to roughly seven times Pakistan’s foreign exchange reserves.

This is much greater than the first approval of a $3 billion IMF loan won by Pakistan last week. The programme is still subject to IMF Executive Board approval. “In addition to IMF disbursements, Pakistan will require significant additional financing to meet its debt maturities and finance an economic recovery,” said Krisjanis Krustins, Fitch’s director of sovereigns for Asia and the Pacific area.

Pakistan must return $25 billion in fiscal year 24.

“While the IMF is likely to have sought and received assurances for such financing, there is a risk that this will be insufficient, particularly if current account deficits worsen.”

The IMF programme, according to Bloomberg, has “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.”

Pakistan raised taxes, raised key interest rates to an all-time high, and reduced spending to secure the original IMF agreement. “It is uncertain that the Pakistani government will be able to secure the full $3bn of IMF financing during the nine-month Stand-By Arrangement,” Grace Lim, a Moody’s analyst in Singapore, told Bloomberg.

The Govt Commitment to continuously enact changes will be put to the test as the country prepares for elections in October, she said. Pakistan had earlier agreed to a $1.1 billion loan in August, but the lender did not transfer the funds because Islamabad failed to meet certain requirements.

“Whether Pakistan will join another IMF programme may not be clear until after the elections,” Lim remarked. “Until a new programme is agreed upon, Pakistan’s ability to secure long-term loans from other bilateral and multilateral partners will be severely limited.”

Fitch Ratings indicated in May that Pakistan was required to pay $700 million in maturities in May and another $3 billion in June. Fitch stated that $2.4 billion in Chinese deposits and loans would be rolled over to pay the obligation.

Fitch Ratings indicated in May that Pakistan was required to pay $700 million in maturities in May and another $3 billion in June. Fitch stated that $2.4 billion in Chinese deposits and loans would be rolled over to pay the obligation.

Rating agencies warned in May that if Pakistan did not receive IMF backing, it could default or restructure its debt.

At the height of the financial crisis, Atif Mian, a Pakistani economist working in the United States, observed that “the issue for Pakistan is not default per se – but its terrible consequences for the people.” Pakistan, he claims, “has left itself almost completely at the mercy of foreign assistance — this is the real sin of its political elite.”

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