Pakistan could default without IMF bailout package, warns Moody’s

Pakistan could default without an International Monetary Fund (IMF) bailout as the country faces uncertain financing options beyond June, Bloomberg reported on Tuesday citing a report by rating agency Moody’s.

The warning has been issued by Moody’s as the cash-strapped nation is trying to finish the ninth review in order to secure $1.2 billion from the international lender.

“We consider that Pakistan will meet its external payments for the remainder of this fiscal year ending in June,” Grace Lim, a sovereign analyst with the rating company in Singapore, was quoted as saying by Bloomberg.

The analyst also said that Pakistan’s financing options beyond June are highly uncertain and without an IMF program, Pakistan could default given its very weak forex reserves.  

Forex reserves held at the State Bank of Pakistan - the central bank of Pakistan  - stood at $4.46 billion during the last week of April, which can cover only about one month of imports.

Pakistan has been struggling to restart a $6.5 billion bailout program from the IMF as the country failed to meet the loan conditions set by the lender. Pakistan entered into a $6.5 billion program with the IMF in 2019, whose ninth review for the release of $1.2 billion is pending since October last year.

The IMF tranche is also critical for the country as it will clear the way for financing from other friendly countries as well.

Pakistan has been witnessing economic turmoil since the beginning of the last year. Pakistan consumer prices inflation rose a record 36.4 per cent in the year to April, the highest inflation rate in South Asia, up from March's previous record of 35.4 per cent, the statistics bureau of Pakistan reported last week.

Pakistan's rural areas recorded food inflation of 40.2 per cent, the bureau told Reuters. Food inflation for both rural and urban areas reached 48.1 per cent, the highest since FY16.