Global rating agency Moody’s on Tuesday said that Pakistan’s staff-level agreement with the International Monetary Fund (IMF)“ improves funding prospects, but ability to sustain reforms key to easing liquidity risks“.
The Shehbaz Sharif-led government and the IMF reached a three-year, $7 billion aid package deal on Saturday, the Washington-based institution said, giving much-needed respite to the nation.
In a comment regarding the new deal with the IMF, Moody’s said, “the new IMF programme will improve Pakistan’s (Caa3 stable) funding prospects.
“The programme will provide credible sources of financing from the IMF and catalyse funding from other bilateral and multilateral partners to meet Pakistan’s external financing needs.”
However, the agency cautioned that the government’s ability to sustain reform implementation will be key to allowing Pakistan to continually unlock financing over the duration of the IMF programme, leading to a durable easing of government liquidity risks.
Regarding the conditions of the new programme, Moodys said it “comes with conditions of far-reaching reforms, such as measures to broaden the tax base and removing exemptions and making timely adjustments of energy tariffs to restore the energy sector viability”, including other measures of improving state-owned entities’ (SOE) management and privatisation, phasing out agricultural support prices and associated subsidies and gradually liberalising trade policy.
However, the agency admitted that social tensions, on the back of high cost of living, could weigh in on reform implementation, especially due to higher taxes and future adjustments to energy tariffs.
“Moreover, risks that the coalition government may not have a sufficiently strong electoral mandate to continually implement difficult reforms remain,” it said in the comment.
As reported by the IMF in May, the country’s “external financing needs is about $21 billion” for the year ending on June 2025 and about $23bn for the fiscal year 2026-27.
Moody’s noted that the foreign reserves held by the country currently “is well below its needs”.
The agency said that Pakistan was susceptible to “policy slippages”, adding that weak governance and high social tensions can compound the government’s ability to advance reforms“.
