Moody’s Investors Service said in a statement on Friday that revenue-raising measures are likely to be among the preliminary measures required by the International Monetary Fund (IMF) before releasing the next tranche of financing to Pakistan.
Pakistan and the IMF will resume talks virtually next week after 10 days of face-to-face talks in Islamabad on how to keep the country afloat ended without a deal.
The talks are aimed at unlocking at least $1.1 billion in frozen funding for Pakistan.
“Pakistan’s government’s liquidity and external vulnerability risks have increased, and there are substantial risks surrounding Pakistan’s ability to obtain the financing it needs to meet its needs for the next few years,” Moody’s said.
The credit rating agency added that the IMF said in its statement that substantial progress had been made on policy measures to address domestic and external imbalances during the visit, adding, “There is still no certainty that “Whether, and if so, when the IMF’s financial assistance will be forthcoming.”
“Financing from the IMF, which will likely also mobilize funding from other multilateral and bilateral partners, is critical to easing Pakistan’s liquidity pressures,” Moody’s added.
“Pakistan’s external position is under significant pressure, following delays in accessing public sector financing that have led to a steady decline in Pakistan’s foreign exchange reserves.”
The country’s economy is in dire straits, grappling with a balance of payments crisis as it tries to service high levels of external debt amid political chaos and deteriorating security.
Inflation has risen, the rupee has depreciated and the country can no longer afford imports, leading to a sharp decline in industry.
The IMF is demanding that the nuclear-armed nation boost its pathetically low tax base, end tax breaks for the export sector, and artificially cheap gasoline to help low-income families. Increase electricity and gas prices.
Prime Minister Shehbaz Sharif had earlier described the terms of the $1.2 billion loan tranche as “beyond imagination”.
After the IMF team left the country on Friday morning, Finance Minister Ishaq Dar told the nation that the talks had “concluded successfully” and that the lender had broadly agreed with the government. A draft memorandum on policies has been shared.
Without elaborating further, he said petrol prices would increase by about 4 percent and additional taxes would be imposed.
The central bank released data on Thursday saying its foreign exchange reserves fell by $170 million in a week, to just $2.9 billion as of last Friday.
Since January, the world’s fifth most populous nation has stopped issuing letters of credit, except for essential food and medicine, which has left the country unable to afford imports of raw materials.
Along with the devaluation of the rupee, the logjam has triggered a major slowdown in manufacturing, including textiles and steel, and construction projects.
“This situation has raised fears that the construction industry will shut down very soon, leaving thousands of workers unemployed,” Syed Ashfaq Hussain, head of the Constructors Association of Pakistan, told JEE News.
While the IMF cash injection itself will not be enough to save Pakistan, the government hopes it will boost confidence and encourage friendly countries such as Saudi Arabia, China and the UAE to offer more loans.
“We will get temporary relief but this is not a permanent solution to the economy. More reforms are needed at the government level,” a senior government official told JEE News.
Pakistan has made and broken more than a dozen IMF agreements in recent decades as parties renege on agreements that undermine their political survival.
