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Fitch, Moody foresee challenges for Pakistan despite IMF deal

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1 year ago

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  • Fitch says there is risk of IMF deal proving to be insufficient. 
  • It says Pakistan to require additional financing besides IMF outlays.
  • Moody’s says govt to be challenged by political, social pressures. 

KARACHI: Pakistan’s agreement with the International Monetary Fund (IMF) for a $3 billion stand-by arrangement (SBA) will provide some relief for its strained public finances, but the country faces significant hurdles to sustain economic stability and growth, Moody’s Investors Service and Fitch said on Monday.

“Pakistan will require significant additional financing besides the IMF disbursements to meet its debt maturities and finance an economic recovery,” said Krisjanis Krustins, director of sovereigns for APAC at Fitch. 

“While the IMF likely sought and received assurances for such financing, there is a risk that this could prove insufficient, particularly if current account deficits widen again.”

The IMF deal, which is subject to approval by the fund’s executive board, will support Pakistan’s efforts to implement reforms that will bolster its macroeconomic resilience over the longer term, Moody’s said in an analyst report.

“The approval of the SBA would moderately alleviate Pakistan’s government liquidity risk in the next few months, as a disbursement of IMF financing would likely also catalyse financing from other bilateral and multilateral partners,” Moody’s analyst Grace Lim said.

However, the rating agency cautioned that the government’s ability to maintain reform momentum, especially revenue-raising measures, and secure external financing will be tested by political and social pressures ahead of elections due by October 2023. 

“Pakistan’s government liquidity risks remain very high,” Lim said. “It is uncertain that the Pakistani government will be able to secure full $3 billion of IMF financing during the nine-month SBA program.”

Pakistan’s economy has been battered by the coronavirus pandemic, floods, high inflation and social unrest. 

The country’s foreign exchange reserves are very low at $3.5 billion as of June 16, while its external debt repayments will remain high for the next few years, with about $25 billion due in fiscal 2024.

“While the IMF SBA alleviates some of the near-term pressures on Pakistan, there is still high uncertainty around Pakistan’s external funding prospects for the rest of fiscal 2024 and later. Pakistan’s government liquidity risks remain very high,” the analyst said.

In the near-term the economic activity in Pakistan would likely remain subdued.

“Ongoing economic hardships because of the repercussions from the floods, compounded by worsening social tensions, would continue to drag economic activity. Elevated external liquidity pressures, limited fiscal space, lagged effects of the central bank policy rate increases and high inflation would also constrain household and government spending, as well as business investment,” the analyst added. 

The IMF deal will help unlock financing from other bilateral and multilateral partners, easing some of the near-term pressures on Pakistan, Moody’s said.

Though, the country will need a longer-term external financing plan to meet its large financing needs for the next few years, which may require another IMF program after the elections. 

“This may come in the form of another IMF programme. However, whether Pakistan will join another IMF programme may only become clear after elections.” 

Negotiations for any future IMF program would also take some time, even if they succeed,” Lim said. 

“Until a new program is agreed, Pakistan’s ability to secure loans from other bilateral and multilateral partners on an on-going basis over the longer-term will be severely constrained.”

Last month, Moody’s had warned that Pakistan could default without an IMF bailout as its financing options beyond June were uncertain.

Thus, reaching the SBA turned out to be a huge achievement for the government, with the stock market making historic day-on-day gains and the currency market stabilising after months.

According to the IMF, the staff-level agreement is subject to approval by the IMF Executive Board, with its consideration expected by mid-July.

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Dar chairs the CCOP meeting; Blue World’s bid offer of Rs.10 billion is rejected.

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18 hours ago

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The Foreign Minister/Deputy Prime Minister chaired the Cabinet Committee on Privatization meeting.

Other committee members who attended the conference included the Federal Secretaries of several Divisions, the Ministers of Finance and Revenue, Industry and Food, Commerce, Power, and Privatization.

The CCOP took the PC Board’s recommendation into consideration and suggested that Blue World’s bid of 10 billion rupees for the sale of 60% of PIACL’s shares be rejected. The bid was rejected by the CCOP, who chose to follow the PC Board’s advice.

The government’s determination to sell out PIACL through government-to-government or privatization was reaffirmed by the CCOP.

The CCOP was pleased with the Aviation Division’s evaluation of PIACL’s sound financial standing.

Additionally, the CCOP established a committee, chaired by the Minister of State for Finance, to assess potential transaction possibilities for the privatization of the Roosevelt Hotel and the appropriate modes of adoption in light of existing legal rules.

Prior to its subsequent meeting, the CCOP also ordered that all difficulties be resolved and an agreement for the selling of services to an international hotel be concluded.

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The KSE-100 Index has surged by 790 points, resulting in an all-time peak for the stock exchange.

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The benchmark KSE-100 Index increased by 790 points, marking a new all-time high for the Pakistan Stock Exchange (PSX) at 94,982 points.

The record-breaking performance underscores a surge of optimism and investor confidence in the stock market.

As investors responded to favorable economic signals, the market experienced a significant increase of over 500 points in early trading. Later, the KSE-100 Index reached another record level of 94,786 points after adding 594 points to its upward trajectory.

This positive development comes as the State Bank of Pakistan’s (SBP) foreign exchange reserves saw an increase of $84 million, reaching $11.26 billion during the week ending November 8, according to data released by the central bank on Thursday.

This represents an increase of 0.75% from the previous week. In addition, the nation’s total liquid foreign reserves experienced a modest increase, increasing by $33.7 million or 0.21% week-on-week to $15.97 billion.

In contrast, commercial banks’ reserves experienced a decline of $50.3 million or 1.06%, ultimately settling at $4.71 billion.

Furthermore, the economic team of Pakistan has expressed confidence in the discussions with the International Monetary Fund (IMF). Minister of State for Finance Ali Pervaiz Malik, in an exclusive conversation with Samaa TV, claimed talks were moving in a positive direction.

Highlighting improvements in Pakistan’s economic conditions, Malik noted substantial progress over the past six months to a year. He emphasized that Pakistan’s current economic situation has seen significant enhancement, with a reduced current account deficit of only $100 million in the first quarter, a reflection of the government’s strategy to increase remittances and boost exports.

Malik shared that discussions with the IMF are primarily focused on external financing, and while there have been speculations about a potential mini-budget or an increase in the petroleum levy, he clarified that these are currently premature considerations.

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Positive IMF negotiations propel KSE-100 Index above 94,000 points

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2 days ago

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As a result of investors’ optimism about the reported progress in the continuing talks with the International Monetary Fund (IMF), the Pakistan Stock Exchange (PSX) experienced a robust surge.

The benchmark KSE-100 Index of the PSX, which tracks market sentiment, rose 713 points to a new record high of 94,068 points, breaking above the 94,000-point barrier, as the trading session began.

Early in the day, the stock market began its upward trajectory as the KSE-100 Index steadily rose, gaining 574 points to reach 93,932 points. A possible agreement with the International Monetary Fund (IMF) might lead to more fiscal stability and back Pakistan’s economic reforms, which is why investors are so optimistic about the country’s future.

Officials from the Federal Board of Revenue (FBR) informed the International Monetary Fund (IMF) on Wednesday that the government would not be introducing a mini-budget and would instead continue to aim to collect Rs12,970 billion in taxes each year.

In line with continuing discussions with the Fund, FBR sources revealed that petroleum goods will not be subject to the General Sales Tax (GST).

The fact that Pakistan’s tax-to-GDP ratio has increased from 8.8% to 10.3%, a 1.5% gain viewed as a favorable sign of Pakistan’s fiscal policies, has reportedly pleased the IMF, who has voiced satisfaction at Pakistan’s recent economic performance.

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