Pakistan’s liquidity pressure to remain high despite IMF agreement: Moody’s

livemint.com:

New Delhi: Pakistan will continue to face significant economic challenges despite the country’s recent staff-level agreement with the International Monetary Fund (IMF) for a $3 billion nine-month Stand-By Agreement (SBA), global credit rating agency Moody’s said. The agreement comes as Pakistan grapples with liquidity concerns and mounting external financing needs, placing its economic stability at risk.

The approval of the SBA, subject to the decision of the IMF’s executive board expected by mid-July, aims to alleviate Pakistan’s near-term liquidity pressures. However, Moody’s analysis reveals that Pakistan’s foreign-exchange reserves, standing at a mere $3.5 billion as of mid-June, are significantly insufficient to cover even a month’s worth of imports.

This stark shortfall in reserves poses a formidable challenge to Pakistan’s ability to meet its external financing requirements not only for the ongoing fiscal year but also for the foreseeable future. With approximately $25 billion worth of repayments, including principal and interest, falling due in the current fiscal year, the new IMF financing, while falling short of covering all obligations, is anticipated to unlock support from other bilateral and multilateral partners to help bridge the financing gap, the Moody’s said in a report.

Despite the potential relief provided by the SBA, Moody’s warns that government liquidity risks are expected to remain high. Uncertainty looms over Pakistan’s ability to secure the full $3 billion of IMF financing during the nine-month program.