KARACHI: Moody’s Investors Service has cautioned that Pakistan’s capacity to get bilateral and multilateral loans will be severely hampered until a new IMF programme is finalised.
“Whether Pakistan will join another IMF programme may only become clear after elections. Which are due by October 2023,” the credit business stated in an issuer comment report. Even if successful, future IMF negotiations would take time.”
Pakistan will not receive inexpensive market funding from Eurobonds or commercial banks in the near future.
Moreover, The government issued no Eurobonds and raised only Rs521 billion ($2.8 billion) from commercial banks in fiscal 2023. Considerably below the Rs1.4 trillion target in the fiscal year 2022-23 budget.
The country’s external debt repayment will continue high for the next few years, with $25 billion of principal and interest due in fiscal 2024, but foreign exchange reserves are low at $3.9 billion as of June 2.
“Pakistan’s external funding prospects for fiscal 2024 and later are highly uncertain,” Moody’s warned. “It is not guaranteed that Pakistan will be able to secure $2.4 billion from the IMF as budgeted.”
Pakistan and the IMF have been discussing the ninth installment of a $6.5 billion loan since last year. Programme ends in June.
Moody’s stated the administration is considering rescheduling bilateral debts but will not ask the Paris Club or multilateral partners.
“Under our definition, a suspension of debt service obligations only to official creditors is unlikely to have direct rating implications,” the rating agency said. “Indeed, such relief would increase the government’s available fiscal resources for essential health, social, and infrastructure spending.”
Budget 2023-24
Pakistan’s fiscal year 2023-24 budget lacks meaningful revenue-raising or spending-containment measures, according to Moody’s.
Moreover, Given the stresses the economy is facing, including government liquidity and external vulnerability pressures, exacerbated by the severe floods of August 2022 that will continue to weigh on economic activity over fiscal 2024, the rating agency considers the deficit estimates and growth projections optimistic.
“At the same time, the budget does not contain significant revenue-raising or spending-containment measures,” Moody’s stated.
“While, The budget provides a wide range of relief measures for households and businesses, including a reduction in fuel and electricity prices, an increase in the minimum wage, and a one-time cash transfer to low-income households.”
Government salaries and pensions account for most of the spending rise. Budgeted employee-related expenses are Rs1.2 trillion, up from Rs960 billion in fiscal 2023.
In fiscal 2024, the government allocated Rs2.8 trillion for grants and subsidies, up from Rs2 trillion in 2023.
Pakistan’s low revenue/GDP ratio limits its debt affordability and burden.
The budget estimates fiscal 2024 tax income at Rs9.2 trillion, up 28% from Rs7.2 trillion in fiscal 2023.
Given a lack of any significant revenue-raising initiatives, the government’s revenue predictions rely mostly on the premise that nominal GDP growth will be high and sustain revenue increases. That assumption has huge downside risks right now.”
