IMF staff-level agreement a credit positive for Pakistan: Moody's

July 18, 2022 (MLN): Moody’s Investors Service on Monday termed the IMF's staff-level agreement with Pakistan, a credit positive as it will ease pressure on the country’s foreign exchange reserves.

“The agreement is credit positive for Pakistan because it paves the way for the release of $1.2 billion in IMF financing at a time when its foreign exchange reserves are under significant pressure”, Moody’s said.

To recall, last week IMF and Pakistani authorities reached and staff level agreement to complete the combined seventh and eighth reviews of the Extended Fund Facility (EFF). The IMF Board said that it will consider an extension of the EFF until end-June 2023 and an augmentation of access by SDR 720 million which will bring the total access under the EFF to about $7 billion.

The report said that through the IMF loan, new doors will open for the additional funding from the other Multilateral and bilateral partners.

Moody’s concern was stated as “However, we expect the deficit to narrow to 3.5%-4% of GDP in fiscal year 2023 from 4.5%-5% in fiscal 2022 as imports moderate amid slowing growth and measures to curb nonessential imports,” said Moody’s

Furthermore, the agency is excepting Pakistan’s  Financing needs to remain high amid continued high global commodity prices and the need to repay external debt.

Moody’s said that though the Chinese State bank Loan of $2.3 billion country’s foreign exchange reserves are expected to increase slightly in June.

The agency is hopeful that Pakistan will get approval for $1.2 billion in the third quarter of this year. But want Pakistan to maintain its engagement with the IMF and improve its focuses on policy priorities, implementing the fiscal 2023 budget, by making progress and development in the power sector, tackling inflation, reducing poverty, enhancing governance and taking a step against corruption.

“The government may also find it difficult to continually enact revenue-raising reforms, such as steadily increasing petroleum levies and raising power tariffs, particularly in the run-up to the next general elections scheduled for mid-2023,” said Moody’s.

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