IMF program relaunch positive, but challenges remain, says Moody’s – Pakistan

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Moody’s Investors Service called the International Monetary Fund’s (IMF) recent approval to disburse a $1.1 billion loan and relaunch the program as “credit positive” for Pakistan.

On August 29, the IMF’s Executive Board completed the seventh and eighth combined reviews of Pakistan’s Extended Financing Facility (EFF) and announced an extension and increase in its lending program for Pakistan.

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“IMF financing and additional support from bilateral partners will ease the pressure on Pakistan’s dwindling foreign exchange reserves, which currently cover less than two months of imports,” the IMF said at the time.

The Board’s decision allows for an immediate disbursement of SDR 894 million (about $1.1 billion), bringing total budget support purchases under the arrangement to about $3.9 billion. dollars.

Following the relaunch of the programme, some countries have also provided additional financial support to Pakistan. Saudi Arabia has pledged to renew a $3 billion loan and provide $1 billion in oil on a deferred payment basis, while Qatar plans to invest $3 billion in Pakistan and the United Arab Emirates $1 billion.

Moody’s said Pakistan would be able to fully meet its financing needs for the 2022-23 financial year.

“Based on our estimates, we project that Pakistan will need around $37-38 billion in external financing for FY2023, including $24 billion for external debt repayment and $13-14 billion dollars for the current account deficit,” Moody’s said.

“Our baseline expectation is that Pakistan will be able to fully meet its financing needs for FY2023 and subsequent years, based on the assumption that Pakistan will maintain its engagement with the IMF for the remaining period. of the EFF and will consistently implement structural reforms to support sustainable growth,” he added.

The US-based rating agency believed the program would also catalyze additional funding from other bilateral and multilateral partners.

“Nevertheless, Pakistan’s ability to complete the current EFF program and maintain a credible policy trajectory that supports additional financing remains uncertain amid high political and social risks,” he said.

Moody’s said political risk remains high, which will test the stability and predictability of policymaking.

“Social risks are also heightened,” Moody’s said as Pakistan battles rising inflation that hit a multi-decade high of 27.3% in August.

Moody’s noted that the ongoing floods would add to inflationary pressures in the country, while imports would also increase.

“Recent record rainfall that left a third of the country inundated and caused tragic loss of life is likely to add to inflationary pressures. At the same time, the demand for food imports is expected to increase, which will increase pressures on the current account. Damage to crops and infrastructure threatens fiscal slippage and complicates Pakistan’s ability to enact tax reforms and reduce spending,” he said.

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