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Moody’s warns of ‘highly uncertain’ external funding prospects for Pakistan

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1 year ago

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  • Agency says FY24 budget lacks revenue-raising measures.
  • Pakistan’s future of new programme to become clear after elections.
  • “Negotiations for future deal will also take some time,” it says.

KARACHI: Moody’s Investors Service has warned that Pakistan’s ability to secure loans from bilateral and multilateral partners will be severely constrained until a new programme is negotiated with the International Monetary Fund (IMF).

The credit company, in an issuer comment report, said: “Whether Pakistan will join another IMF programme may only become clear after elections, which are due by October 2023. Negotiations for any future IMF programme would also take some time, even if they succeed.”

It further warned that Pakistan is unlikely to access market financing at affordable costs, either from Eurobonds or commercial banks, in the foreseeable future. 

In fiscal 2023, the government issued no Eurobonds and raised only Rs521 billion ($2.8 billion) from commercial banks, far short of the Rs1.4 trillion target set in the fiscal year 2022-23 budget.

The country’s external debt repayment will remain high for the next few years, with about $25 billion of repayments (principal and interest) due in fiscal 2024, while foreign exchange reserves are very low at $3.9 billion as of June 2.

“Pakistan’s external funding prospects for fiscal 2024 and later are highly uncertain,” Moody’s said. “It is not guaranteed that Pakistan will be able to secure $2.4 billion from the IMF as budgeted.”

The IMF has been in talks with Pakistan on the ninth tranche of a $6.5 billion bailout package since last year. The programme will expire at the end of June.

Moody’s said the government is considering rescheduling bilateral debts, but it does not plan to approach the Paris Club or multilateral partners to reschedule their debt.

“Under our definition, a suspension of debt service obligations only to official creditors is unlikely to have direct rating implications,” the rating agency said. “Indeed, such relief would increase the government’s available fiscal resources for essential health, social and infrastructure spending.”

Moody’s said Pakistan’s newly announced budget for the fiscal year 2023-24 lacks major revenue-raising or spending-containment measures to alleviate intense government liquidity pressures.

The rating agency said it considers the deficit estimates and growth projections to be optimistic, given the stresses the economy is facing, in particular government liquidity and external vulnerability pressures, exacerbated by the severe floods of August 2022 that will continue to weigh on economic activity over fiscal 2024. 

“At the same time, the budget does not contain significant revenue-raising or spending-containment measures,” Moody’s said.

“The budget provides a wide range of relief measures for households and businesses, including a reduction in fuel and electricity prices, an increase in the minimum wage, and a one-time cash transfer to low-income households.”

A large share of the increase in expenditure goes towards salaries and pensions for government employees. Total employee-related expenses are budgeted at Rs1.2 trillion, compared with the estimated spending of Rs960 billion in fiscal 2023.

In addition, the government earmarked Rs2.8 trillion for grants and subsidies in fiscal 2024, compared with an estimated Rs2 trillion in fiscal 2023.

However, Pakistan’s low revenue/GDP ratio is a major constraint on the government’s debt affordability and debt burden.

The budget targets fiscal 2024 tax revenue at Rs9.2 trillion, up 28% from an estimated Rs7.2 trillion in fiscal 2023.

“Given a lack of new significant revenue-raising measures, the government’s revenue projections rely mainly on the assumption that nominal GDP growth will be high and support an increase in revenue. In the current context, we see significant downside risks to that assumption.”

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

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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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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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