Pakistan Could Default Without IMF Bailout Loans, Warns Moody’s

The IMF's $6.5 billion bailout programme for Pakistan has stalled as the government failed to meet certain loan conditions, making it difficult for the country to restart the programme

Pakistan’s forex reserves, which stand at $4.5 billion, remain extremely low and sufficient to cover only about one month of imports.

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Moody’s Investor Service, a global credit ratings firm, has said that Pakistan could default without an International Monetary Fund (IMF) bailout, as its financing options beyond June are uncertain, reported Bloomberg. The IMF's $6.5 billion bailout programme for Pakistan has stalled as the government failed to meet certain loan conditions, making it difficult for the country to restart the programme.

Grace Lim, a sovereign analyst with the Moody’s Investor Service in Singapore, told Bloomberg, "We consider that Pakistan will meet its external payments for the remainder of this fiscal year ending in June. However, Pakistan’s financing options beyond June are highly uncertain. Without an IMF program, Pakistan could default given its very weak reserves." Lim added that an engagement with the IMF beyond June would support additional financing from other multilateral and bilateral partners.

Pakistan’s foreign exchange (Forex) reserves, which stand at $4.5 billion, remain extremely low and sufficient to cover only about one month of imports, she further said.

Pakistan is struggling to restart a $6.5 billion bailout program from the Washington-based lender, which has stalled after the government failed to meet some loan conditions. A bailout program worth $6.5 billion was approved in July 2019 to help Pakistan stabilise its economy, which was facing a balance of payments crisis due to high fiscal and current account deficits, a weak currency, and dwindling foreign exchange reserves.

However, the program faced delays and challenges, with Pakistan failing to meet some of the agreed-upon targets and reform commitments, leading to the IMF temporarily suspending the program in April 2020.

The IMF has stressed the importance of continued progress on economic reforms and policy adjustments, while Pakistan has expressed the need for more flexibility and support from the lender in light of the pandemic and its economic impact.

The Bloomberg report noted that the Dollar bonds due in 2031 were indicated at 34.58 cents on the dollar on Tuesday near the lowest since November. The Pakistani Rupee has been trading near a record low.

Other rating agencies have also flagged Pakistan's economic situation. According to S&P Global Ratings, Pakistan’s gross external financing needs as a proportion of current-account receipts plus usable reserves are estimated to rise to 139.5 per cent in the fiscal year 2024 from 133 per cent in 2023. 

Andrew Wood, a sovereign analyst at S&P in Singapore told Bloomberg, “We consider the IMF program to be a foundation for important fiscal policy reforms. Agreement on the current review cycle could also coalesce more confidence for other bilateral and multilateral lenders to Pakistan.”

It also noted that upcoming elections and political conflicts could potentially lead to a delay in the IMF loan, as former prime minister Imran Khan remains vocal against the government and the influential military, increasing tensions.

On Tuesday, Former Pakistan Prime Minister Imran Khan has been arrested from outside the Islamabad high court (IHC). The PTI chairman was taken into custody by Rangers outside the court, where he had gone to seek bail in multiple FIRs registered against him.