Editorial
The International Monetary Fund (IMF) has raised concerns about Pakistan’s external debt repayment capacity, stating that the country’s external financing needs are expected to reach $62.6 billion over a three-year period under the Extended Fund Facility (EFF) program. Furthermore, the IMF report indicates that the external financing needs could escalate to $110.5 billion if calculated for a five-year period from 2024-25 to 2028-29.
The IMF data highlights the projected external financing needs for Pakistan, indicating amounts of $18.813 billion in the current fiscal year, $20.088 billion in 2025-26, and $23.714 billion in 2026-27. Moreover, the report suggests that even after the completion of the three-year program, the financing needs are expected to remain high, standing at $24.625 billion in 2027-28 and $23.235 billion in fiscal year 2028-29.
The IMF has cautioned that Pakistan’s capacity to repay its external debt is subject to significant risks and is critically dependent on policy implementation and timely external financing. The Fund’s exposure to Pakistan is projected to increase significantly, reaching Special Drawing Rights (SDR) 6,816 million by September 2024, which is 336% of the quota.
The IMF has emphasized that restoring fiscal and external viability is crucial for Pakistan to ensure its capacity to repay the Fund. This relies on strong and sustained policy implementation, including fiscal consolidation, external asset accumulation, and decisive reforms to enable stronger and more resilient economic development.
In terms of external financing, the IMF anticipates multilateral disbursements to reach $14 billion over the period from FY25-28, with commitments from key bilateral creditors to maintain their exposure through new financing activities. The program is reported to be fully financed, with firm commitments for the first 12 months and good prospects thereafter. Additionally, the authorities have secured commitments from key bilateral partners to maintain their existing exposures throughout the program, contributing to meeting the financing needs.
However, despite the commitments, financing risks remain high, and continued monitoring will be necessary to ensure timely and adequate financing during program reviews.
In response to the IMF report, Mohammad Sohail, Chief of Topline Securities, highlighted that Pakistan’s gross financing requirement for FY25 stands at $18.8 billion, marking a nine-year low according to IMF data. This contrasts with the common perception that Pakistan is facing record-high repayments in the coming years. Sohail attributed the decrease in the gross financing requirement to a contained current account deficit and relatively lower repayments in FY25, as well as anticipated reductions in the current account deficit over the next few years.
