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Pakistan

Moody's, Fitch expect Pakistan to secure $1.2bn IMF bailout package

  • Fitch, however, cautions Pakistan’s ability to complete the current programme and maintain a credible policy path that supports further financing remains highly uncertain
Published July 27, 2022

Moody’s Investors Service and Fitch Ratings said they expect Pakistan to secure the $1.2 billion bailout from the International Monetary Fund (IMF), which may help ease pressure on the country’s currency and forex reserves.

“We assume IMF board approval of Pakistan’s new staff-level agreement” with the lender, Krisjanis Krustins, a Hong Kong-based director at Fitch, was quoted as saying by Bloomberg on Wednesday.

“This will unlock significant additional financing from the IMF and other multilateral and bilateral sources and may well provide a significant confidence boost to the markets.”

Meanwhile, Moody’s expects IMF to disburse the funds in the third quarter, said Grace Lim, a sovereign analyst with the ratings company in Singapore.

Still, the risk that Pakistan may not complete its bailout programme with the IMF is on the downside as the government may find it difficult to adopt measures to raise revenue, she was quoted as saying in the report.

“Pakistan’s ability to complete the current programme and maintain a credible policy path that supports further financing remains highly uncertain, while elevated inflation and a higher cost of living are adding to social and political risks,” Lim said.

The statement comes after Fitch Ratings last week downgraded Pakistan’s outlook from stable to negative in view of the significant deterioration in the country's external liquidity position and financing conditions since early 2022. Moody's downgraded Pakistan’s outlook to negative from stable in June.

Fitch said it saw considerable risks to the implementation of the IMF programme and to continued access of Pakistan to financing after the programme's expiry in June 2023 in a tough economic and political climate.

Economic pundits have regularly stressed on the importance of the IMF bailout for Pakistan, which remains embattled in multiple economic crises including depleting foreign exchange reserves, mounting debt payments and a depreciating local currency that has taken inflation to over 21%.

The IMF reached a staff-level agreement (SLA) with Pakistan authorities earlier this month for the conclusion of the combined seventh and eighth reviews of the Extended Fund Facility (EFF). However, ongoing political and economic upheavals have raised concerns among investors, especially in the context of the government maintaining its reforms' agenda to successfully move forward in the IMF programme.

It has also been reported that the IMF is looking to assess Saudi Arabia’s commitment to financing Pakistan before the multilateral lender disburses fresh funds to the country.

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