KARACHI – Moody’s Investors Service has issued a warning regarding Pakistan’s ability to obtain loans from bilateral and multilateral partners.
The credit company stated that this ability will be severely limited until a new agreement is reached with the International Monetary Fund (IMF). The report suggests that it is unclear whether Pakistan will participate in another IMF program until after the upcoming elections, which are scheduled for October 2023. Even if negotiations for a future IMF program are successful, they are expected to be time-consuming.
Furthermore, Moody’s cautioned that Pakistan is unlikely to access affordable market financing from Eurobonds or commercial banks in the foreseeable future. In the fiscal year 2023, the government failed to issue any Eurobonds and only managed to raise Rs521 billion ($2.8 billion) from commercial banks, significantly below the Rs1.4 trillion target set in the budget for the fiscal year 2022-23.
The report also highlighted the challenges Pakistan faces in terms of high external debt repayments in the coming years. In fiscal 2024, the country is expected to repay approximately $25 billion in principal and interest. Additionally, Pakistan’s foreign exchange reserves are currently at a very low level of $3.9 billion as of June 2.
Moody’s emphasized the uncertainty surrounding Pakistan’s external funding prospects for fiscal 2024 and beyond. It expressed doubts about the country’s ability to secure the budgeted $2.4 billion from the IMF.
Discussions between Pakistan and the IMF regarding the ninth tranche of a $6.5 billion bailout package have been ongoing since last year. The program is set to expire at the end of June.
Regarding debt rescheduling, Moody’s noted that the government is contemplating rescheduling bilateral debts but does not intend to approach the Paris Club or multilateral partners for such rescheduling. The rating agency clarified that suspending debt service obligations solely to official creditors is unlikely to have a direct impact on Pakistan’s credit rating. In fact, such relief could potentially free up fiscal resources for essential health, social, and infrastructure expenditures.
Moody’s criticised Pakistan’s recently announced budget for the fiscal year 2023-24, stating that it lacks significant measures to generate revenue or contain spending, which would help alleviate the intense liquidity pressures faced by the government.
The rating agency regarded the deficit estimates and growth projections in the budget as overly optimistic, given the economic stresses Pakistan is experiencing, particularly liquidity and external vulnerability pressures aggravated by the severe floods in August 2022, which are expected to continue affecting economic activity throughout fiscal 2024.
Additionally, the budget does not include substantial revenue-raising or spending-containment measures, according to Moody’s.
