Top rating agency Moody’s said Pakistan will get boost from International Monetary Fund (IMF) program as it enhances the country’s funding prospects and provide reliable sources of financing, but mentioned that sustainability of reforms is crucial for mitigating liquidity risks.
Pakistani government clinched $7 billion aid package deal with the Washington-based IMF, providing significant relief to the nation.
The rating agency said the new IMF program would improve Pakistan’s (Caa3 stable) funding prospects by providing reliable financing sources and catalyzing additional funds from other bilateral and multilateral partners to meet the country’s external financing needs.
The agency said the government’s ability to maintain reform implementation is essential for Pakistan to continuously access financing throughout the IMF program, leading to a durable reduction in government liquidity risks.
It mentioned that the new program includes conditions for extensive reforms, such as broadening the tax base, eliminating exemptions, making timely adjustments to energy tariffs to restore the energy sector’s viability, improving the management and privatization of state-owned entities (SOEs), phasing out agricultural support prices and related subsidies, and gradually liberalizing trade policy.
However, the agency warned that social tensions, fueled by the high cost of living, could hinder reform implementation, particularly due to increased taxes and future energy tariff adjustments. Moody’s also pointed out the risk that the coalition government might lack a strong enough electoral mandate to consistently implement challenging reforms.
IMF reported earlier this year that Pakistan’s external financing needs would be approximately $21 billion for the year ending June 2025 and about $23 billion for the fiscal year 2026-27.
Moody’s highlighted that the country’s current foreign reserves are significantly below its needs and stated that Pakistan is vulnerable to policy reforms. It also mentioned that weak governance and high social tensions could further impede the government’s ability to advance reforms.
Moody’s changes outlook on Pakistan banking system from negative to stable
