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

Editorial

Not without reform
Updated 22 Apr, 2024

Not without reform

The problem with us is that our ruling elite is still trying to find a way around the tough reforms that will hit their privileges.
Raisi’s visit
22 Apr, 2024

Raisi’s visit

IRANIAN President Ebrahim Raisi, who begins his three-day trip to Pakistan today, will be visiting the country ...
Janus-faced
22 Apr, 2024

Janus-faced

THE US has done it again. While officially insisting it is committed to a peaceful resolution to the...
Elections in India
Updated 21 Apr, 2024

Elections in India

Independent accounts and spot reports are at variance with Modi-friendly TV anchors and they do not see an easy victory for the Indian premier.
IHC letter
21 Apr, 2024

IHC letter

THIS is a historic opportunity for the judiciary to define its institutional boundaries. It must not be squandered....
Olympic preparations
21 Apr, 2024

Olympic preparations

THIS past week marked the beginning of the 100-day countdown to the Paris Olympics, with the symbolic torch-lighting...