Moody’s, a global rating agency, commented on Pakistan’s recent staff-level agreement with the International Monetary Fund (IMF), highlighting its potential impact on the country’s financial outlook. The agreement, which entails a three-year, $7 billion aid package, is seen by Moody’s as a positive development that enhances Pakistan’s funding prospects.
According to Moody’s, the IMF program will provide credible financing sources and catalyze additional funding from bilateral and multilateral partners, addressing Pakistan’s external financing needs effectively. However, Moody’s emphasized that sustaining reform efforts will be crucial for Pakistan to continuously access financing throughout the program and mitigate government liquidity risks in the long term.
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The conditions of the IMF program include comprehensive reforms such as expanding the tax base, eliminating exemptions, and timely adjustments to energy tariffs to stabilize the energy sector. Additionally, reforms targeting state-owned enterprises’ management, privatization, agricultural subsidies reduction, and gradual trade liberalization are also part of the program’s requirements.
Moody’s acknowledged potential social tensions arising from the high cost of living, which could complicate reform implementation, particularly regarding increased taxes and future adjustments to energy prices. The agency also cautioned about governance challenges and the government’s ability to sustain reforms amidst these pressures.
Highlighting Pakistan’s external financing needs, estimated at $21 billion for the year ending June 2025 and $23 billion for fiscal years 2026-27, Moody’s noted that the country’s foreign reserves are currently below required levels. The agency underscored the risk of policy setbacks and governance weaknesses, which could hinder reform progress and economic stability in Pakistan.
