International Monetary Fund (IMF) staff-level agreement with Pakistan is credit positive for the country. Agreement paves the way for release of $1.2 billion in IMF financing at a time when its foreign exchange reserves are under significant pressure, says Moody’s Investors Services.
The IMF Executive Board will consider extending the program until the end of June 2023 and increasing its size by $1 billion to $7 billion. Moody’s stated that completing the reviews is also likely to unlock additional funding from other multilateral and bilateral partners for Pakistan.
Pakistan’s current account deficit has widened since mid-2021 on higher food and oil prices and stronger demand for imports. However, the deficit is expected to narrow in future as imports moderate amid slowing growth and measures to curb nonessential imports take effect, IMF says.
Foreign exchange reserves declined to $8.9 billion in May, sufficient to cover less than two months of imports. Pakistan’s financing needs will remain high in fiscal 2023 amid continued high global commodity prices and the need to repay external debt, says S&P.
Pakistan’s ability to complete the current EFF program and maintain a credible policy path remains highly uncertain, Moody’s has said. The government may also find it difficult to continually enact revenue-raising reforms, such as steadily increasing petroleum levies and raising power tariffs, it added.