KARACHI: Global ratings agency Moody’s has indicated that the recent staff-level agreement between the International Monetary Fund (IMF) and Pakistan significantly enhances the country’s funding prospects. However, the sustainability of the reforms will be key to mitigating liquidity risks.
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 is pending approval by the IMF Executive Board, though a date for the vote has not yet been set.
Moody’s commented on Pakistan’s situation, stating, “If approved, which we expect is likely, the new IMF programme will improve Pakistan’s (Caa3 stable) funding prospects. The programme will provide credible sources of financing from the IMF and catalyze funding from other bilateral and multilateral partners to meet Pakistan’s external financing needs.”
Despite this positive outlook, Moody’s emphasized that the government’s ability to maintain reform implementation will be crucial for Pakistan to consistently unlock financing throughout the IMF programme. This consistency is necessary for achieving a durable easing of government liquidity risks.
The new IMF EFF comes with stringent reform conditions, including measures to broaden the tax base, eliminate exemptions, and make timely adjustments to energy tariffs to ensure the viability of the energy sector. Other conditions involve improving the management and privatisation of state-owned enterprises, phasing out agricultural support prices and associated subsidies, advancing anti-corruption, governance and transparency reforms, and gradually liberalising trade policy.
Moody’s noted, “A resurgence of social tensions due to the high cost of living—which may increase because of higher taxes and future adjustments to energy tariffs—could hinder reform implementation. Moreover, risks that the coalition government may not have a sufficiently strong electoral mandate to continually implement difficult reforms remain.”
According to an IMF report published in May, Pakistan’s external financing needs are projected to be around $21 billion for fiscal 2025 (ending June 2025) and approximately $23 billion for fiscal 2026-27. As of July 5, Pakistan’s foreign exchange reserves stood at $9.4 billion, significantly below the required amount, it mentioned.
Moody’s also highlighted Pakistan’s fragile external position, characterised by high external financing requirements over the next three to five years. The country is vulnerable to policy slippages, with weak governance and high social tensions potentially compounding the government’s challenges in advancing reforms. These issues could jeopardise Pakistan’s ability to complete reviews under the IMF programme and unlock necessary external financing.
