Global rating agency Moody’s stated on Tuesday that Pakistan's staff-level agreement with the International Monetary Fund (IMF) "improves funding prospects, but the ability to sustain reforms is key to easing liquidity risks."
The Shehbaz Sharif-led government and the IMF reached a three-year, $7 billion aid package deal on Saturday, offering much-needed respite to the nation, according to the Washington-based institution.
Commenting on the new IMF deal, Moody’s remarked, “The new IMF programme will improve Pakistan’s (Caa3 stable) funding prospects. The programme will provide credible sources of financing from the IMF and catalyse funding from other bilateral and multilateral partners to meet Pakistan’s external financing needs.”
However, the agency cautioned that the government’s ability to sustain reform implementation will be crucial for Pakistan to continuously unlock financing throughout the IMF programme, leading to a durable easing of government liquidity risks.
Regarding the programme's conditions, Moody’s highlighted that it “comes with conditions of far-reaching reforms, such as measures to broaden the tax base, remove exemptions, and make timely adjustments of energy tariffs to restore the energy sector's viability.”
Other measures include improving state-owned entities’ (SOE) management and privatisation, phasing out agricultural support prices and associated subsidies, and gradually liberalising trade policy.
The agency acknowledged that social tensions, driven by a high cost of living, could hinder reform implementation, particularly due to higher taxes and future adjustments to energy tariffs.
“Moreover, risks that the coalition government may not have a sufficiently strong electoral mandate to continually implement difficult reforms remain,” it added.
As reported by the IMF in May, the country’s “external financing needs are about $21 billion” for the year ending June 2025 and about $23 billion for the fiscal year 2026-27.
Moody’s noted that the foreign reserves held by the country are currently “well below its needs.”
The agency emphasized that Pakistan is susceptible to “policy slippages,” adding that weak governance and high social tensions could further impede the government’s ability to advance reforms.
