Fitch urges prompt action as Pakistan’s IMF SBA nears expiry

WEB DESK: Fitch Ratings, a prominent global rating agency, has expressed concern over the outcome of Pakistan’s recent election, warning that the closely contested results and ensuing political uncertainty could complicate the country’s efforts to secure a new financing agreement with the International Monetary Fund (IMF).

The existing stand-by arrangement (SBA) is set to expire in March 2024.

According to Fitch Ratings, the success of a new agreement is pivotal to Pakistan’s credit profile, with the assumption that a deal will be reached within a few months.

However, the rating agency cautions that protracted negotiations or a failure to secure the agreement could heighten external liquidity stress, raising the likelihood of default.

Despite recent improvements in Pakistan’s external position, marked by the State Bank of Pakistan reporting net foreign reserves of $8 billion as of February 9, 2024, up from $2.9 billion on February 3, 2023, Fitch Ratings notes that this remains insufficient relative to projected external funding needs.

The agency anticipates that these needs will continue to surpass reserves for the foreseeable future.

Fitch Ratings reveals that, excluding routine rollovers of bilateral debt, Pakistan achieved less than half of its $18 billion funding plan in the first two quarters of the fiscal year ending June 2024 (FY24).

The credit rating agency underscores the urgency for the next government to address the country’s vulnerable external position by securing financing from both multilateral and bilateral partners.

Anticipating a coalition government comprising the Pakistan Muslim League-Nawaz party and the Pakistan People’s Party, Fitch Ratings dismisses the strong performance of candidates associated with Imran Khan’s Pakistan Tehreek-e-Insaf (PTI) party in the recent election.

The agency emphasises that negotiating a successor deal with the SBA and adhering to the policy commitments within it will be crucial for external financing flows, not only from the IMF but also for shaping Pakistan’s economic trajectory in the long term.

In summary, the upcoming months pose a critical juncture for Pakistan, as navigating through the challenges of political uncertainty and securing a renewed IMF financing agreement will significantly impact the nation’s economic stability and creditworthiness.

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