IMF agreement enhances Pakistan’s funding outlook: Moody’s

WEB DESK: The credit ratings and research body, Moody’s Ratings, announced on Tuesday that the recent staff-level agreement between Pakistan and the International Monetary Fund (IMF)  the country’s funding prospects.

Although the ability to sustain reforms remains crucial for mitigating liquidity risks, Moody’s said of Pakistan.

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On July 12, the IMF and Pakistani authorities reached a staff-level agreement on a 37-month Extended Fund Facility (EFF) Arrangement, amounting to approximately $7 billion. The agreement awaits approval from the IMF Executive Board, with no voting date currently set.

Moody’s stated, “If approved, which we expect is likely, the new IMF programme will improve Pakistan’s (Caa3 stable) funding prospects. The programme will provide credible sources of financing from the IMF and catalyse funding from other bilateral and multilateral partners to meet Pakistan’s external financing needs.”

The agency also highlighted that the government’s ability to maintain reform implementation will be pivotal in ensuring continued access to financing over the duration of the IMF programme, thereby reducing government liquidity risks.

The new IMF EFF includes conditions for extensive reforms, such as measures to broaden the tax base, remove exemptions, and make timely adjustments to energy tariffs to restore the energy sector’s viability, as well as conditions on improving management and privatisation of state-owned enterprises (SOEs), phasing out agricultural support prices and related subsidies, and advancing anti-corruption and governance reforms.

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Moody’s also warned that the high cost of living, potentially exacerbated by higher taxes and future energy tariff adjustments, could cause a resurgence of social tensions. This would in turn impede reform implementation, the agency said. Moreover, there are risks that the coalition government may lack the electoral mandate to persist with challenging reforms.