Pakistan is in the midst of a balance of payment crisis, and the stakes are high. Without the financial aid of the International Monetary Fund (IMF), the country faces the prospect of defaulting on its external payment obligations.
Unfortunately, reports say that the IMF is not convinced by the assurances given to them by Pakistan’s friendly countries.
Officials of the finance ministry, speaking anonymously, have confirmed that Pakistan has fulfilled several conditions set by the lender for the revival of the loan facility, and the staff-level agreement on the ninth review was supposed to be signed by February 9.
However, the delay in the IMF programme could have severe repercussions. The budget planning, which is expected to be tabled in the second week of June, is likely to be affected.
Moody’s Investor Service has warned that Pakistan may default if it does not receive a bailout from the IMF as its financing options beyond June are uncertain.
While Pakistan is expected to meet its external payments until the end of this fiscal year in June, its reserves are weak and without IMF support, it could default.
Pakistan is struggling to restart a stalled $6.5 billion bailout programme from the IMF due to the government’s failure to meet some loan conditions, and political tensions ahead of elections are adding to the risk of a delay in the loan.
An engagement with the IMF beyond June would support additional financing from other multilateral and bilateral partners, which could reduce default risk. Pakistan’s foreign-exchange reserves remain very low, standing at $4.5 billion, and sufficient to cover only about one month of imports.
S&P Global Ratings estimates that Pakistan’s gross external financing needs as a proportion of current-account receipts plus usable reserves will rise to 139.5 per cent in fiscal year 2024 from 133 per cent in 2023.
S&P analysts believe that an IMF programme would be a foundation for important fiscal policy reforms and that an agreement on the current review cycle could instill more confidence for other bilateral and multilateral lenders to Pakistan.
