Webdesk: Pakistan’s Long-Term Foreign-Currency Issuer Default Rating (IDR) lowered to “CCC-” from “CCC+” a few months ago. On Friday, Fitch Ratings said that the risks are high and that a default or debt restructuring is becoming a more likely outcome for the country.
“Our base case is still that Pakistan and the IMF will agree on the programme review,” Krisjanis Krustins, a director at Fitch based in Hong Kong, told Bloomberg.
It’s important to note that Fitch cut Pakistan’s rating in February of this year.
Krustins said that Pakistan, which is short on money, has to pay back a total of $3.7 billion in debt payments in May and June. This is happening while the government is trying to get a bailout from the International Monetary Fund (IMF).
The director said that about $700 million is due in May and $3 billion is due in June.
Fitch told Bloomberg that it thinks China will roll over $2.4 billion in deposits and loans.
Pakistan and the IMF have been talking for about half a year about restarting a $6.5 billion bailout. Pakistan is trying to avoid a default as its foreign exchange reserves, which cover imports for nearly one month, come under pressure. The country has gotten money from the Middle East and China, which was a key IMF requirement.
Bailout plan
The debt payments show how important it is for Pakistan to get back on track with its bailout plan with the Washington-based lender, which has been on hold since November.
The $1.1 billion payment is part of a $6.5 billion bailout plan that the IMF approved in 2019. The plan is set to end in June, before the budget, and the money will be paid back. Pakistan has been given $3.9 billion so far.
The country is in the middle of an economic crisis, and inflation has risen to 36.4%, which is the highest in its history and the highest in South Asia. At the same time, the government and former prime minister Imran Khan are in a rough political battle.
In order to get IMF money, the government has removed limits on the exchange rate, put taxes in place, raised energy prices, and cut back on subsidies. It has also raised the key interest rate to 21%, which is a record.
Since he took office in September, Finance Minister Ishaq Dar has said, “There’s no way Pakistan is going to default.” However, leaders of the ruling alliance and the opposition parties always say that the country is on the verge of default.
