WASHINGTON: Two leading global rating agencies have warned that Pakistan will require significantly more funds than what it’s receiving from the International Monetary Fund (IMF) to meet its debt maturities and to finance its economic recovery, reported Bloomberg on Monday.

Moody’s Investors Service and Fitch Ratings that issued the warning are two of the big three credit rating agencies, recognised by the US Securities and Exchange Commission.

The two agencies noted that Pakistan has to repay $25 billion in the current fiscal year to meet its debt obligations. The repayments include both principal and interest, and are about seven times Pakistan’s foreign exchange reserves, according to Moody’s.

This is significantly more than the initial approval of a $3bn IMF loan Pakistan secured last week. The programme is still subject to approval by the IMF Executive Board “Pakistan will require significant additional financing besides the IMF disbursements to meet its debt maturities and finance an economic recovery,” said Krisjanis Krustins, director of sovereigns for Asia and the Pacific region at Fitch.

Pakistan requires to repay $25bn in FY24

“While the IMF likely sought and received assurances for such financing, there is a risk that this could prove insufficient, particularly if current account deficits widen again.”

Bloomberg, an international financial wire which reported the two quotes, also noted that the IMF programme has “sent a positive wave through the markets, with stocks surging the most in 15 years on Monday and dollar bonds extending their best run ever.”

Pakistan increased taxes, hiked key interest rates to an all-time high, and cut spending to secure the initial pact with the IMF. “It is uncertain that the Pakistani government will be able to secure full $3bn of IMF financing during the nine-month Stand-By Arrangement,” Grace Lim, an analyst with Moody’s in Singapore told Bloomberg.

The government’s commitment to continually implement reforms will be tested as it goes into elections due by October, she said. Pakistan had previously clinched a $1.1bn loan in August, but the lender did not release the amount as Islamabad failed to meet some conditions.

“Whether Pakistan will join another IMF programme may only become clear after elections,” said Lim. “Until a new programme is agreed, Pakistan’s ability to secure loans from other bilateral and multilateral partners on an on-going basis over the longer-term will be severely constrained.”

In May, Fitch reported that Pakistan was required to pay $700 million of maturities in May and another $3bn in June. Fitch noted that $2.4bn of deposits and loans from China would be rolled over to meet the obligation.

Rating agencies warned in May that Pakistan could default or do debt restructuring if it did not get IMF’s support.

At the height of the financial crisis, a US-based Pakistani economist Atif Mian noted that for Pakistan “the issue is not default per se - but its terrible consequences for the people.” Pakistan, he said, “has left itself almost completely at the mercy of foreign assistance — this is the real sin of its political elite.”

Published in Dawn, July 4th, 2023