Pakistan could default in the absence of IMF bailout loans, warns Moody's

By Karl Lester M. Yap

Pakistan could default without an International Monetary Fund bailout as its financing options beyond June are uncertain, Moody’s Investor Service said.

“We consider that Pakistan will meet its external payments for the remainder of this fiscal year ending in June,” said Grace Lim, a sovereign analyst with the ratings company in Singapore. “However, Pakistan’s financing options beyond June are highly uncertain. Without an IMF program, Pakistan could default given its very weak reserves.”

Pakistan is struggling to restart a $6.5 billion bailout program from the Washington-based lender, which has stalled after the government failed to meet some loan conditions. Political tensions ahead of elections due this year are adding to the risk of a delay in the loan, as former premier Imran Khan is showing no signs of backing down against the government and the powerful military.  

Dollar bonds due in 2031 were indicated at 34.58 cents on the dollar on Tuesday near the lowest since November. The rupee has been trading near a record low.

An engagement with the IMF beyond June would support additional financing from other multilateral and bilateral partners, which could reduce default risk, Lim said in an emailed response to questions Monday. Pakistan’s foreign-exchange reserves — which stand at $4.5 billion — remain extremely low and sufficient to cover only about one month of imports, she said.

Pakistan’s gross external financing needs as a proportion of current-account receipts plus usable reserves is estimated to rise to 139.5% in fiscal year 2024 from 133% in 2023, according to S&P Global Ratings.

“We consider the IMF program to be a foundation for important fiscal policy reforms,” said Andrew Wood, a sovereign analyst at S&P in Singapore. “Agreement on the current review cycle could also coalesce more confidence for other bilateral and multilateral lenders to Pakistan.”