IMF flags risks to Pakistan’s repayment capacity

Pakistan’s capacity to repay the International Monetary Fund (IMF) remains subject to significant risks, the Washington-based lender said in its staff report, adding that the country remains critically dependent on policy implementation and timely external financing.

The lender said the Fund’s exposure would reach SDR 6,816 million by September 2024 (336% of quota) with purchases linked to the request.

“With completion of all purchases under the arrangement, the Fund’s exposure would peak in September 2027 at SDR 8,774 million (432% of quota; approximately 55% of projected gross reserves for FY27) around double the average for recent EFFs,” the lender informed.

In July, the IMF reached a staff-level agreement (SLA) with Pakistani authorities for a $7-billion, 37-month loan programme aimed at cementing stability and inclusive growth.

The IMF in its staff report noted that exceptionally high risks, notably from high public debt and gross financing needs, low gross reserves and sociopolitical factors, could jeopardise policy implementation and erode repayment capacity and debt sustainability.

“Restoring fiscal and external viability is critical to ensure Pakistan’s capacity to repay the Fund.

“This hinges on strong and sustained policy implementation, including, but not limited to, fiscal consolidation and external asset accumulation, as well as decisive reforms to enable stronger and more resilient economic development,” IMF said.

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However, the Washington-based lender informed that the program is fully financed, with firm commitments for the first 12 months and good prospects thereafter.

“Financing committed for FY25 includes $16.8 billion of rollovers of existing short-term financing and $2.5 billion of additional commitments, including from China, Saudi Arabia, the ADB and the IsDB.

“The authorities have also received firm commitments from key bilateral partners to (at least) maintain their existing exposures throughout the program, including by continuing to rolling over existing short-term liabilities, which will contribute to meeting financing needs in the remaining program period.”

Moreover, loans from foreign commercial banks totalling $6.6 billion, which were renewed during the 2019 EFF and 2023 SBA, are also expected to continue to be rolled during the new program period, the lender said.

“These together with commitments from multilateral institutions provide the necessary financing assurances. Nonetheless, financing risks remain high, and continued monitoring will be needed to ensure timely and adequate financing during program reviews,” it noted.