Pakistan’s capacity to get loans from bilateral and multilateral partners would be severely constrained, according to a research by Moody’s Investors Service, unless a new plan is agreed with the International Monetary Fund (IMF). According to the article, it may not be known until after the elections, which are expected to take place by October 2023, whether Pakistan would take part in another IMF program. Even if discussions for a new IMF plan are successful, it is anticipated that they would take some time.
Moody’s warns that Pakistan is unlikely to access affordable market financing from sources such as Eurobonds or commercial banks in the foreseeable future. In fiscal year 2023, the government did not issue any Eurobonds and fell significantly short of its target by raising only Rs521 billion ($2.8 billion) from commercial banks, compared to the target of Rs1.4 trillion set in the fiscal year 2022-23 budget.
The research also emphasises Pakistan’s significant future external debt repayment load, with principle and interest payments totaling over $25 billion due in fiscal year 2024. Furthermore, Pakistan’s foreign exchange reserves, which stood at $3.9 billion as of June 2, are extremely low.
The outlook for Pakistan’s external financing for fiscal years 2024 and beyond is also questionable, according to Moody’s, which also points out that it is not likely that Pakistan will get the $2.4 billion from the IMF as planned. The ninth installment of a $6.5 billion bailout package has been the subject of discussions between the IMF and Pakistan. The present program is slated to expire at the end of June.
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The administration is considering rescheduling bilateral loans, according to the article, but it has no plans to approach the Paris Club or other multilateral partners about doing the same. According to Moody’s, a suspension of debt service obligations just for official creditors is unlikely to have an impact on the government’s credit rating because it would free up more funds for crucial spending on infrastructure, social programs, and health care.
Moody’s criticises Pakistan’s recently unveiled budget for the fiscal year 2023–2024, pointing out that it lacks major steps to reduce severe government cash difficulties by increasing revenues or cutting spending. Given the economic pressures the nation is experiencing, such as the pressures on government liquidity and external vulnerability that have been made worse by severe floods in August 2022 and are anticipated to have an impact on economic activity throughout fiscal year 2024, the report suggests that the deficit estimates and growth projections in the budget may be overly optimistic.
