WASHINGTON: Pakistan will need to pause debt repayments if it does not secure funding from the International Monetary Fund soon enough, a US bank warned as diplomatic circles in Washington indicated that Islamabad is close to signing a deal with the IMF.

But the Bank of America team which prepared the report, also said that China, a close ally, can rescue Pakistan because of its close ties with the country.

The bank’s team of experts, which includes its economist Kathleen Oh, wrote: “China holds the key for relief in the near term as it is the largest creditor. With closer ties between China and Pakistan, the hope is rising for China to come on board to provide a backstop to its long-time ally.”

The Bloomberg news agency, which reported the bank’s assessment on Monday, also quoted economist Kathleen Oh as saying that “unless the payout comes through soon, a state of moratorium looks unavoidable.”

She pointed out that even after weeks of negotiations, it’s still not clear “whether and when Pakistan can receive the next installment from the IMF.” Pakistan has implemented a series of policy measures including increased taxes, higher energy prices and increasing interest rates to the highest in 25 years to unlock funding from its stalled IMF $7 billion loan programme.

On Thursday, Finance Secretary Hamed Yaqoob Sheikh told reporters that an agreement was likely in the next few days, though Pakistan has missed such timelines in the past.

Governor State Bank of Pakistan Jameel Ahmad said last week that Pakistan needs to repay about $3bn of debt by June, while $4bn is expected to be rolled over.

The Bloomberg report noted that a loan rollover from the Industrial and Commercial Bank of China earlier this month helped to ease pressure on Pakistan, “whose reserves are only enough to cover a few weeks of imports.”

A rating agency, Fitch Ratings, warned in its latest report on the country’s economic situation that “default is a real possibility in Pakistan,” as indicated in the current rating assigned to it. “The probability is high, but it is less than 50pc,” Krisjanis Krustins, a Hong Kong-based director at Fitch told Bloomberg.

Krustins pointed out that the Pakistani rupee has shaved nearly 20pc of its value so far this year. If funding does not materialise, it’s entirely possible that you could see further currency depreciation. But diplomatic circles in Washington said that Pakistan was “really close” to signing a deal and it could be finalised in the next few days. Last week, Finance Minister Ishaq Dar also expressed similar hopes while talking to journalists in Islamabad.

During a visit to Washington last week, Foreign Minister Bilawal Bhutto Zardari also expressed frustration at the delay, saying: “And finally, the cherry on the cake is the negotiations with the IMF, as ever ongoing and still not concluded. And that uncertainty also has economic consequences.”

He urged all international financial institutions to “provide relief to our people,” adding that the country’s economic situation was “nothing short of a disaster,” particularly for the bottom of the pyramid.

Published in Dawn, March 14th, 2023

Follow Dawn Business on Twitter, LinkedIn, Instagram and Facebook for insights on business, finance and tech from Pakistan and across the world.

Opinion

The risk of escalation

The risk of escalation

The silence of the US and some other Western countries over the raid on the Iranian consulate has only provided impunity to the Zionist state.

Editorial

Saudi FM’s visit
Updated 17 Apr, 2024

Saudi FM’s visit

The government of Shehbaz Sharif will have to manage a delicate balancing act with Pakistan’s traditional Saudi allies and its Iranian neighbours.
Dharna inquiry
17 Apr, 2024

Dharna inquiry

THE Supreme Court-sanctioned inquiry into the infamous Faizabad dharna of 2017 has turned out to be a damp squib. A...
Future energy
17 Apr, 2024

Future energy

PRIME MINISTER Shehbaz Sharif’s recent directive to the energy sector to curtail Pakistan’s staggering $27bn oil...
Tough talks
Updated 16 Apr, 2024

Tough talks

The key to unlocking fresh IMF funds lies in convincing the lender that Pakistan is now ready to undertake real reforms.
Caught unawares
Updated 16 Apr, 2024

Caught unawares

The government must prioritise the upgrading of infrastructure to withstand extreme weather.
Going off track
16 Apr, 2024

Going off track

LIKE many other state-owned enterprises in the country, Pakistan Railways is unable to deliver, while haemorrhaging...