In the recent news, Moody’s Investors Service has stated that the International Monetary Fund (IMF) staff-level agreement with Pakistan has proved to be a credit positive for the country because it paves the way for the release of $1.2 billion in IMF financing at a time when its forex reserves are under significant pressure.
Completing Reviews Will Unlock Further Funding from Partners to Improve Pakistan’s Forex Reserves
On 14 July, IMF staff and Pakistani authorities reached a staff-level agreement on guidelines to satisfy the merged seventh and eighth contemplations of Pakistan’s (B3 negative) Extended Fund Facility (EFF). Moody’s stated that completing the reviews is also likely to unlock added funding from other multilateral and bilateral partners. In addition, the IMF Executive Board will assess extending the program until the end of June 2023 and increasing the size of the IMF agreement by $1 billion to $7 billion to support Pakistan’s program enactment and improve its forex reserves.
The current account deficit has widened since mid-2021 on higher food and oil prices and more robust demand for imports; integrated with domestic political apprehension, this has driven a sharp devaluation in the Pakistani rupee and forex reserves, further pushing up import costs.
According to IMF Agreement, Pakistan is to Receive $1.2 Billion in the Third Quarter
“We expect the IMF Executive Board to approve the $1.2 billion disbursement in the third quarter of this year. We also expect Pakistan to maintain its engagement with the IMF, which would catalyze financing from other external sources as it focuses on policy priorities that the IMF has identified, including implementing the fiscal 2023 budget, making progress on power sector reforms, lowering inflation, reducing poverty, enhancing governance and mitigating corruption. In this scenario, we expect Pakistan to be able to meet its external financing needs for the next few years”, said the rating agency.