Moody’s Investors Service expressed heightened concerns on Wednesday over Pakistan’s ability to revive the $6.7 billion IMF program, which is expected to end officially in two weeks, on June 30.
The absence of IMF support amplifies the risk of Pakistan defaulting on foreign debt repayments, especially as the country’s foreign reserves have dwindled to a critical level below $3 billion, following the repayment of a $1 billion commercial loan to China.
These scant reserves, covering only around three weeks of imports, could put the Pakistani Rupee under significant pressure against the US dollar. On Wednesday, the currency was trading at Rs287/$ in the inter-bank market. It’s worth noting that on May 11, the rupee was only Rs12 short of a record low at Rs299/$, a scenario amplified by political instability and an uncertain law and order situation.
Bloomberg reported Moody’s projections, stating Pakistan is inching towards a higher risk of failure in restarting its $6.7 billion bailout program with the IMF. This precarious situation moves the South Asian nation closer to a sovereign default.
Grace Lim, a sovereign analyst with Moody’s in Singapore, indicated, “There are escalating risks that Pakistan may not conclude the IMF program due to end in June. Absent an IMF program, Pakistan could face a default given its significantly weak reserves.”
Earlier, Pakistan made a pre-emptive repayment of $1 billion to China before its maturity in late June. This move was based on an understanding that Beijing would refinance the loan to Islamabad before the close of the fiscal year on June 30.
Pakistan is making a last-ditch effort to reinstate its IMF program, grappling with a $2 billion financing gap and issues related to exchange-rate policy. Despite the government’s assurance to meet its debt obligations, investors remain skeptical, particularly with the country’s dollar bonds trading in distressed territory since last year.
Read More: Pakistan Faces Risk of Default Without IMF Bailout, Warns Moody’s
Looking forward, Pakistan must address approximately $23 billion of external debt payments for the fiscal year 2024, starting in July. However, Central Bank Governor Jameel Ahmad dismissed claims that officials were considering debt restructuring talks. Pakistan is due to pay $900 million of sovereign debt in June and anticipates a rollover of $2.3 billion worth of obligations.
As per Asian trading data on Wednesday, Pakistan’s $1 billion bond due in April next year remains marginally unchanged at about 55.6 cents on the dollar, following a near three-cent drop over the previous two days.
In a recent development, Finance Minister Ishaq Dar virtually engaged with IMF Mission Chief Nathan Porter on Tuesday, aiming to secure the IMF program. The meeting, however, did not yield a conclusive outcome and necessitated further discussions to address the IMF’s concerns.
Meanwhile, the rupee, already trading near a record low against the dollar, may face additional downward pressure, according to Lim. The local currency has depreciated over 20% this year after an official devaluation in January, making it one of the poorest-performing currencies worldwide.
