Two leading global rating agencies — Moody’s Investors Service and Fitch Ratings — warned that the risks pertaining to Pakistan's financial stability might linger as the cash-strapped country stares at a $25-billion debt repayment in the current fiscal year.
These agencies believe that the short-term financial package (and stand-by arrangement) worth $3 billion that Pakistan received from the International Monetary Fund (IMF) won't be sufficient for the country to solve its problems.
In a press release on Tuesday, July 4, Moody's said it estimates that around $25 billion worth of repayments (principal and interest) are due in the current fiscal year. Pakistan's fiscal year starts on July 1 and ends on June 30.
Raising an alarm, Moody's said, "The new IMF financing on its own will not be enough to allow Pakistan to meet all its external debt repayments." It, however, said an IMF disbursement "is likely to catalyse financing from other bilateral and multilateral partners, which will be as critical in aiding Pakistan meet its financing needs.”
Moody’s Investors Service further said Pakistan’s liquidity risks will remain high even if a new stand-by arrangement (SBA) with the IMF is approved.
"We expect government liquidity risks to remain high, even if the new SBA is approved. It is uncertain whether Pakistan will secure the full $3 billion of IMF financing during the nine-month programme," Moody’s said in a statement.
Meanwhile, Krisjanis Krustins, Director of Sovereigns for APAC at Fitch, was quoted by Bloomberg as saying, "Pakistan will require significant additional financing besides the IMF disbursements to meet its debt maturities and finance an economic recovery."
Krustins added that there is a risk that the IMD bailout could prove "insufficient, particularly if current account deficits widen again.”
The report also quoted Grace Lim, an analyst with Moody’s in Singapore, as saying it is uncertain that the Pakistan government will be able to secure the full $3 billion of IMF financing during the nine-month stand-by arrangement programme.
What other options does Pakistan have
Moody's said Pakistan will need a longer-term financing plan to meet its large external financing needs over the next few years.
"Pakistan could look at another IMF programme which could be in place for a few years but this is likely to become clear only after the general election," Moody's said, adding that negotiations over future programmes would take time even if they do succeed.
"Until a new programme is agreed (upon), Pakistan’s ability to secure loans from other bilateral and multilateral partners will be severely constrained beyond the period of this new SBA," it added.
News agency PTI had earlier reported that the Pakistan government is considering meeting most of its external financing needs in the medium term through 10-15 years of international bonds and concessional multilateral loans.
It cited the Dawn newspaper as reporting that the government plans to diversify local debt instruments to inflation-based bonds, list government papers on the stock exchange, and issue short-term Islamic and conventional floating rate products.
The Pakistan-IMF deal and its fallout
The Pakistan government and the International Monetary Fund (IMF) last week reached a long-awaited staff level agreement to inject $3 billion into the ailing economy after months-long negotiations that pushed the country to the brink of default.
On Pakistan markets
On Monday, July 3, the Karachi Stock Exchange had shored up by around 2,400 points before closing, the highest single-day gain, with the benchmark KSE-100 index up 2,414 points at 43,867. The markets closed at 43,899 points, up 2,446.32 points from Friday’s (June 30) close of 41,452.68.
On Tuesday (July 4), Pakistan's benchmark share index rallied over 6 percent in Monday's trade. The index rose 2,414 points at 43,867 at 11.30 am local time (0630 GMT), with auto stocks surging on hopes that import curbs would be eased.
On the Pakistani rupee
The Pakistani rupee showed an appreciable gain of Rs 15 against the US dollar in the interbank market, with stocks continuing an upward trend on Tuesday following the last-minute approval of funding by the IMF to the cash-strapped country.
The Forex Association of Pakistan said the dollar was trading at around 271 Pakistani rupees in interbank trading after the market opened at 286 Pakistani rupees.
On inflation
Pakistan’s inflation had eased for the first time in seven months in June, Aljazeera reported on Monday. Citing data by the Pakistan Bureau of Statistics, it said the year-on-year inflation was 29.4 percent in June compared with a record 38 percent in May.
However, it quoted economist Ashfaque Hasan Khan, a former special secretary at the Finance Ministry, as saying that "the latest inflationary easing would likely only be temporary.”
"I fear inflation will increase in July as the state bank has increased the rate of interest and fixed it at 22 percent. The (inflation) rate will also increase in case the currency is devalued as a result of any understanding between the government and the IMF," he said.
