Running Out of Time: Pakistan’s Struggle for IMF Deal Approval
KARACHI: Pakistan is running out of time to convince the International Monetary Fund (IMF) to release the remaining $2.2 billion from the $6.7 billion bailout program before June 30, according to a recent report by Moody’s on Wednesday.
Moody’s, the rating agency, has expressed concerns that Pakistan may face default if the IMF program fails. Despite Finance Minister Ishaq Dar’s multiple discussions, he has been unsuccessful in persuading top IMF officials to complete the 9th review, which is crucial for securing a staff-level agreement and the release of the $1.1 billion tranche.
With only two weeks left, Pakistan must reach a deal with the IMF or face severe consequences for the economy. The bailout package is set to expire on June 30.
Bloomberg quoted Grace Lim, a sovereign analyst with Moody’s in Singapore, stating that the risks are growing that Pakistan may not be able to complete the IMF program, which is set to expire at the end of June.
Throughout the current fiscal year, almost all major global rating agencies have downgraded Pakistan’s economy multiple times. Negative macro indicators and dwindling foreign exchange reserves have kept the economy under pressure. Despite assistance from friendly countries and donor agencies, the government struggled to avoid sovereign default, but the poor economic performance served as a clear signal for the helpers to maintain their distance.
The government’s latest estimate indicates a 0.29% economic growth for FY23, but independent analysts believe there may be a contraction ranging from 2 to 3%.
Moody’s warned that without an IMF program, Pakistan could face default due to its significantly weak reserves. The State Bank of Pakistan’s foreign exchange holdings are below $4 billion. Other rating agencies have also issued warnings that Pakistan could default if the IMF refuses to complete the bailout package.
Both the prime minister and finance minister have repeatedly announced that Pakistan has fulfilled all pre-conditions for unlocking the IMF loan. Analysts and researchers also believe that Pakistan has met the required conditions set by the IMF.
Regarding the IMF’s demands, they stated that the record high policy rate of 21% and substantial import cuts have severely impacted the economy, resulting in 38% inflation and the loss of millions of jobs.
The Moody’s analyst noted that Pakistan’s financing options beyond June are highly uncertain, even as significant external repayments will continue over the next few years.
The financial sector in Pakistan believes that the failure of the bailout package would put the country in a difficult position, and the new government expected to take office after the general elections at the end of this year would face significant challenges in navigating the disastrous economic conditions.
