Daily Times

Pakistan could default without an International Monetary Fund (IMF) bailout as its financing options beyond June are uncertain, ratings agency Moody’s was quoted as saying in a report published by Bloomberg on Tuesday.

“We consider that Pakistan will meet its external payments for the remainder of this fiscal year ending in June,” said Grace Lim, a sovereign analyst with the ratings company in Singapore.

“However, Pakistan’s financing options beyond June are highly uncertain. Without an IMF programme, Pakistan could default given its very weak reserves.”

Pakistan entered into a $6.5 billion programme with the IMF in 2019. But the programme’s ninth review for the release of $1.2 billion is pending since October last year as the government has been unable to meet some of the pre-requisites set by the lender.

The IMF tranche is critical for Pakistan as it will also unlock financing from friendly countries, helping Pakistan avert default.

The country has been witnessing economic turmoil since last year, with its foreign exchange reserves down to critical levels while talks with the IMF for the release of the pending tranche have remained unsuccessful thus far.

A delegation of IMF was in Pakistan in February this year for talks with the government to revive the programme. After the delegation left, Finance Minister Ishaq Dar said negotiations with the lender had “nearly concluded” and a staff-level agreement would happen “next week”. But more than two months since then, an agreement is still not in sight.

Meanwhile, reserves held by the State Bank of Pakistan stood at $4.46 billion during the week ending on April 28, enough to cover just a month’s imports. Inflation has also soared to unprecedented levels. The consumer price index rose to a record 36.4 per cent in April from a year earlier, driven largely by skyrocketing food prices and rising energy costs.

Amid months-long delay in the revival of the International Monetary Fund (IMF) programme, Pakistan now aims to address the concerns raised by the lender before implementing the proposed fuel subsidy plan, Bloomberg reported Tuesday. Minister of State for Petroleum Dr Musadik Malik admitted that the IMF had some reservations about the government’s plan to raise fuel prices for wealthier people to finance a subsidy for lower-income people – the plan that aims to help protect the poor and vulnerable.

Malik said: “We want to make sure now that if we move forward, we take care of their concerns and make sure that they completely understand what we are trying to do and why.”

The government is still trying to meet IMF conditions to revive a stalled $6.5 billion bailout package, key to avoiding a default. The government has raised taxes and energy prices and allowed the currency to depreciate to meet some of them.

This is not the first time petrol price subsidies have been a sticking point for the IMF, as measures by the previous Imran Khan-led government stalled the programme last year. Last month, Finance Minister Ishaq Dar said that the fuel subsidy plans had been shared with the fund. However, there is still no sign of Pakistan reaching the staff-level agreement with the IMF any time soon.