Pakistan running out of time, could default, says credit rating agency Moody's

Pakistan is on the precipice of default, Moody's has warned. The credit ratings agency said time is running out for Pakistan to convince International Monetary Fund (IMF) to release the remaining tranche of the $2.2 billion of the $6.7 billion payout.

“There are increasing risks that Pakistan may be unable to complete the IMF program that expires at the end of June,” Grace Lim, a sovereign analyst with Moody's Singapore was quoted as saying by Bloomberg.

“Without an IMF program, Pakistan could default, given its very weak reserves," Lim added.

The deadline to reach a deal on the financing programme is approaching and the Pakistani government is nowhere near securing the funding. Despite finance minister Ishaq Dar holding several rounds of discussions with the top IMF officials, Islamabad hasn't been able to lock dates for a board meeting, a pre-requisite for the disbursement.

Notably, conducting a board meeting on the review of the programme would require a prior staff-level agreement. However, the deal has been delayed since November last year, the longest delay since at least 2008.

Islamabad needs to satisfy IMF on three counts, includingthe budget for the fiscal year 2023-24 (FY24). However, over a week since the budget was tabled in the National Assembly, IMF remains unconvinced.

IMF remains unconvinced

The lender’s resident representative for Pakistan, Esther Ruiz Perez in a statement said the new tax amnesty scheme proposed by the government sets a 'damaging precedent' and goes against the conditionality clauses set under the financing programme.

She added that the budget “misses an opportunity to broaden the tax base in a more progressive way, and the long list of new tax expenditures reduces further the fairness of the tax system and undercuts the resources needed for greater support for vulnerable BISP recipients and development spending”.

Despite securing financing from UAE and Saudi Arabia to meet the pre-conditions laid down by the monetary body, it hasn't been able to lay its hands on the payout.

The cash-strapped country has been looking to secure the IMF package for a long time. According to a report by Reuters,the central bank's foreign reserves have fallen as low as to cover barely a month of controlled imports. The Pakistani economy has slowed, with an estimated 0.29 per centGDP growth for 2022-2023.

(With inputs from agencies)

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