ISLAMABAD: The global rating agency, Fitch Ratings, on Monday raised concern about the recent confused political environment in Pakistan while stating that the close outcome of Pakistan’s election and resulting political uncertainty “may complicate” the efforts of the country for getting a new financing agreement with the International Monetary Fund (IMF).
The ongoing $3-billion Stand-By Arrangement (SBA) will expire next month.
According to the rating body, a new deal would be crucial, and a must to the country’s credit profile as the agency assumes the deal should be done within a few months. However, any delay or difficulties in negotiation would increase external liquidity stress and would enhance the probability of default.
The rating body further mentioned that the ongoing SBA agreement acted as a temporary package, and they believe any successor arrangement would need a new deal but with tougher conditions for Pakistan.
“However, this is low relative to projected external funding requirements, which we expect would continue to exceed reserves for at least the next couple of years,” said Fitch, adding that Pakistan only managed to cover less than half of its $18 billion funding plan in the first two quarters of the financial year ending June 2024 (FY24), excluding routine rollovers of bilateral debt.
The rating agency expressed concerns that Pakistan would face several challenges in getting further relief and incentives, both from multilateral and bilateral partners, as the new government would be in hot waters due to the current economic situation in the country. The Credit rating agency was of the view that tackling a fresh IMF deal would be quite challenging.
Fitch Hope New Govt to Introduce Reforms
Fitch further stated that the upcoming government seemed to be a coalition of the Pakistan Muslim League-Nawaz Party and Pakistan People’s Party; however, the independent candidates backed by Imran Khan’s Pakistan Tehreek-e-Insaf (PTI) party also showed a significant performance in the election, and there might be a political uncertainty followed by economic quagmire in the near future.
However, Fitch stated that the agency believed the new government would soon assume office to promptly engage with the IMF, but the risk of political uncertainty would be there.
The agency also highlighted the stronger consensus within Pakistan to introduce major reforms before facilitating a new deal with the IMF.
“We believe the external finances of Pakistan would remain structurally weak until and unless it develops a private sector that could generate greater significantly more export income, attract FDI (Foreign Direct Investment) or reduce import dependence,” Fitch said.
