Moody’s Investor Service has cautioned that Pakistan could default on its debt obligations if it doesn’t secure an International Monetary Fund (IMF) program to support its finances beyond June.
The ratings agency’s sovereign analyst for Pakistan in Singapore, Grace Lim, said that without an IMF program, Pakistan would be at risk of default given its “very weak reserves.” Lim added that Pakistan’s financing options beyond June are highly uncertain.
Pakistan’s coalition government has been struggling to revive a $6.5 billion IMF bailout program, which had stalled after the government failed to meet some loan conditions. This situation has been exacerbated by rising political tensions ahead of this year’s elections. Meanwhile, former Prime Minister Imran Khan has shown no signs of backing down against the government.
S&P Global Ratings estimates that Pakistan’s gross external financing needs will rise to 139.5% in fiscal year 2024 from 133% in 2023. The IMF program is seen as a foundation for important fiscal policy reforms, according to Andrew Wood, a sovereign analyst at S&P in Singapore. An agreement on the current review cycle could also coalesce more confidence for other bilateral and multilateral lenders to Pakistan.
Pakistan’s foreign-exchange reserves are currently at $4.5 billion, which remains extremely low and sufficient to cover only about one month of imports.
The rupee has been trading near a record low, while dollar bonds due in 2031 were indicated at 34.58 cents on the dollar on Tuesday, near the lowest since November.