Moody’s Ratings stated on Tuesday that while the International Monetary Fund’s (IMF) staff-level agreement improves Pakistan’s funding prospects, the key to easing liquidity risks lies in the country’s ability to sustain reforms.
On July 12, the IMF and Pakistani authorities reached a staff-level agreement on a 37-month Extended Fund Facility (EFF) arrangement worth approximately $7 billion. This agreement awaits approval from the IMF Executive Board, with no date set for a vote.
Moody’s commented, “If approved, which we expect is likely, the new IMF program will enhance Pakistan’s (Caa3 stable) funding prospects. The program will secure credible sources of financing from the IMF and stimulate additional funding from other bilateral and multilateral partners to meet Pakistan’s external financing needs.”
The agency emphasized that the government’s ability to sustain reform implementation will be crucial for Pakistan to continually unlock financing throughout the IMF program, thereby reducing government liquidity risks.
The new IMF EFF entails extensive reforms, including broadening the tax base, removing exemptions, making timely energy tariff adjustments, enhancing state-owned enterprises’ management and privatization, phasing out agricultural support prices and subsidies, advancing anti-corruption, governance, and transparency reforms, and gradually liberalizing trade policy.
Moody’s warned that rising social tensions due to the high cost of living, which may increase with higher taxes and future energy tariff adjustments, could impede reform implementation. Additionally, there are risks that the coalition government may lack a strong electoral mandate to implement challenging reforms consistently.
According to an IMF report published in May, Pakistan’s external financing needs are estimated at $21 billion for fiscal year 2025 (ending June 2025) and around $23 billion for fiscal years 2026-27. As of July 5, Pakistan’s foreign exchange reserves stood at $9.4 billion, significantly below its needs.
