KARACHI: Time is running out for Pakistan to convince the IMF to release the remaining $2.2 billion out of the $6.7bn bailout programme before June 30, said Moody’s in its latest report on Wednesday.
The rating agency has expressed fear that the country might face default in case of failure of the IMF programme. Finance Minister Ishaq Dar did hold several sessions but has failed to convince the top IMF officials for the completion of the 9th review essential for securing a staff-level agreement for the release of the $1.1bn tranche.
Only two weeks are left for Pakistan to reach a deal with IMF or face failure that would have serious consequences for the economy. The bailout package will expire on June 30.
Bloomberg quoted Grace Lim, a sovereign analyst with Moody’s in Singapore, saying the risks are increasing that Pakistan may be unable to complete the IMF programme that expires at the end of June.
Almost all top world rating agencies downgraded Pakistan’s economy several times during the current fiscal year. Most of the macro indicators remained negative while the poor foreign exchange reserves kept the economy under pressure during the entire fiscal year. The government struggled to avoid sovereign default with help from the friendly countries and donor agencies but the poor economic performance was a strong indicator for the helpers to keep a distance.
The latest government estimate is 0.29pc economic growth for FY23 but independent analysts believe contraction in the range of 2 to 3pc.
The rating agency said that without an IMF programme, Pakistan could default, given its very weak reserves. The State Bank of Pakistan’s foreign exchange holdings are below $4bn. Along with the Moody’s, other rating agencies have been warning that Pakistan could default in case IMF refused to complete the bailout package.
Both the prime minister and finance minister announced many times that Pakistan has met all pre-conditions for unlocking the IMF loan. Analysts and researchers also believe that Pakistan met the required conditions of the IMF.
On IMF demand, they said, the record high 21pc policy rate and huge cut on imports practically crumbled the economy and the nation has been paying heavy costs with 38pc inflation and loss of millions of jobs.
The Moody’s analyst said that Pakistan’s financing options beyond June are highly uncertain, even as its external repayments will remain significant over the next few years.
The financial sector in Pakistan believes that failure of the bailout package would put the country in hot water while the new government expected to come after general elections by the end of this year would not find it easy to steer through the disastrous economic conditions.
Published in Dawn, June 15th, 2023