The recent close outcome of Pakistan’s election and ensuing political uncertainty could hinder the country’s efforts to secure a new financing agreement with the IMF, replacing the expiring Stand-By Arrangement (SBA) by March 2024, according to Fitch Ratings.
Fitch Ratings emphasized the critical importance of a new deal for Pakistan’s credit profile, warning that failure to secure it could heighten external liquidity stress and increase the risk of default. Although Pakistan’s external position has shown improvement, with net foreign reserves reaching USD 8.0 billion as of February 9, 2024, this remains low relative to projected external funding needs.
Despite some progress in meeting funding plans, Fitch Ratings estimates that Pakistan met less than half of its USD18 billion funding plan for the fiscal year ending June 2024 (FY24), excluding routine debt rollovers.
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The credit rating agency highlighted the challenges in finalizing a new IMF deal, noting potential resistance to tougher conditions from entrenched vested interests in Pakistan. Continued political instability may further delay discussions with the IMF and hinder the implementation of reforms.
Fitch Ratings acknowledged a stronger consensus within Pakistan on the need for reform, which could facilitate the implementation of a successor arrangement. However, it cautioned against the risks of policy reversal if external liquidity pressures ease over time.
In conclusion, Fitch Ratings underscored the structural weaknesses in Pakistan’s external finances, emphasizing the need for sustainable economic reforms to bolster export income, attract foreign direct investment, and reduce import dependence.