Moody’s Ratings recently commented on the new International Monetary Fund (IMF) program for Pakistan, acknowledging that it will likely enhance the country’s funding prospects. However, the agency also cautioned that the successful implementation of reforms by the Pakistani government will be crucial in unlocking financing over the three-year duration of the program.
The IMF and Pakistan’s staff-level agreement on July 12 paved the way for a new three-year, $7-billion loan under the Extended Fund Facility. While the IMF’s statement highlighted the need for approval from its Executive Board and timely confirmation of financing assurances from Pakistan’s bilateral partners, Moody’s emphasized that the new program could attract credible financing sources from the IMF and other bilateral and multilateral partners to meet Pakistan’s external financing needs.
Despite the positive prospects, Moody’s identified potential challenges related to policy implementation, governance, and social tensions in Pakistan. The agency highlighted concerns about the government’s ability to advance reforms and complete reviews under the IMF program amidst weak governance and high social tensions, which could jeopardize the unlocking of external financing.
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Furthermore, Moody’s underscored the far-reaching conditions attached to the new IMF program, including reforms to broaden the tax base, energy tariff adjustments, state-owned enterprises management, privatization, and trade policy liberalization. The agency also expressed concerns about potential social tensions arising from the cost of living increases due to higher taxes and energy tariff adjustments, which could impact reform implementation.
Notably, Moody’s emphasized Pakistan’s vulnerable external position and high financing requirements over the next few years, with concerns about policy slippages and governance challenges that could hinder the government’s ability to advance reforms and unlock external financing.
Taking into consideration Pakistan’s credit rating, Moody’s had downgraded the government’s local and foreign currency issuer and senior unsecured debt ratings in February 2023. Despite the stable outlook for Pakistan’s credit rating, the agency maintained a cautious stance, emphasizing the need for the government to address liquidity and external vulnerability risks to secure a potential upgrade in the future.
