Pakistan is now more likely to fail to restart its $6.7 billion bailout program with the International Monetary Fund (IMF), pushing the South Asian country closer to a sovereign default, Moody’s Investors Service told Bloomberg.
Grace Lim, a sovereign analyst with the ratings company in Singapore, said in an emailed response to Bloomberg, “There are increasing risks that Pakistan may be unable to complete the IMF program that expires at the end of June. Without an IMF program, Pakistan could default, given its very weak reserves”.
Lim warned in response to further inquiries that the Pakistani Rupee, which is nearing a record low against the dollar, could see further weakness. She believes the IMF’s comments on the exchange rate were about the discrepancy between the interbank and open markets.
The local currency has lost more than 20 percent this year after officials devalued the currency in January, making it one of the worst performers globally.
According to Lim, Pakistan’s financing options after June are not known, even if its foreign repayments remain substantial over the next few years. She added that continuing engagement with the IMF would encourage further financing from multilateral and bilateral partners, potentially reducing default risk.
It is pertinent to mention that Pakistan is making one last push to reactivate its IMF program, with a $2 billion funding gap and exchange-rate policy as some of the impediments to securing the bailout. While the government has committed to fulfilling billions of dollars in debt, investors remain skeptical, with the country’s dollar bonds trading in distressed territory since last year.
Pakistan’s external debt payments for the fiscal year 2023-24 are expected to be around $23 billion. The sum is nearly five times its reserves, with the majority coming from multilateral and bilateral sources.
The country’s $1 billion bond, due in April next year, was slightly changed in Asian trading on Wednesday, at around 55.6 cents on the dollar, after falling nearly 3 cents in the previous two days.
Besides this week’s push for an IMF olive branch, Pakistan is planning to purchase spot shipments of liquefied natural gas for the first time after almost a year.
This shows that the country is on a better financial footing, as suppliers were unwilling to supply fuel to the country last year, fearing that it would be unable to pay.