"Pakistan's Financial Stability at Risk as IMF Lifeline Hangs in the Balance Amid Political Tensions and Weak Reserves: Moody's"

In a recent report, Moody's Investor Service has issued a warning that Pakistan may face the risk of defaulting if it fails to secure a bailout package from the International Monetary Fund (IMF) due to its weak financial reserves. While Moody's predicts that Pakistan will be able to meet its external payments for the remainder of this fiscal year ending in June, it states that the country's financing options beyond June are "highly uncertain." Without an IMF programme, the risk of default is significant given Pakistan's weak reserves, according to Grace Lim, a sovereign analyst with the ratings company in Singapore.

Pakistan has been struggling to revive a $6.5 billion bailout programme from the Washington-based lender, which has stalled after the government failed to meet some loan conditions. The political climate ahead of this year's elections has added to the risk of a delay in the loan, as former prime minister Imran Khan is showing no signs of backing down against the government. As a result, the cash-strapped nation of over 220 million people is facing increasing economic pressure, with dollar bonds due in 2031 falling to 34.58 cents on the dollar on Tuesday near the lowest since November. The rupee has also been trading near a record low.

Lim emphasized that an engagement with the IMF beyond June would support additional financing from other multilateral and bilateral partners, which could reduce default risk. It should be noted that Pakistan's foreign-exchange reserves remain extremely low at $4.5 billion, sufficient to cover only about one month of imports. S&P Global Ratings estimates that Pakistan's gross external financing needs as a proportion of current-account receipts plus usable reserves is expected to rise to 139.5% in fiscal year 2024 from 133% in 2023.

Andrew Wood, a sovereign analyst at S&P in Singapore, stated that they consider the IMF programme to be a foundation for important fiscal policy reforms and that agreement on the current review cycle could also coalesce more confidence for other bilateral and multilateral lenders to Pakistan. Pakistan's economy has struggled with inflation and a current account deficit, and the country's financial situation may worsen without a bailout programme from the IMF.