WASHINGTON: Moody’s, the global rating agency, said on Tuesday that Pakistan’s recent agreement with the International Monetary Fund (IMF) is set to improve funding prospects for the financially strained South Asian nation.
Under the leadership of Shehbaz Sharif, Pakistan’s government reached a significant agreement with the IMF, finalizing a three-year aid package worth $7 billion on Saturday. This agreement comes as a crucial step towards stabilizing Pakistan’s economy.
Moody’s emphasized that the new IMF program is expected to enhance Pakistan’s (Caa3 stable) funding outlook. However, the agency cautioned that sustained implementation of reforms by the government will be crucial for unlocking continuous financing throughout the program’s duration, thereby alleviating persistent liquidity risks.
The agency highlighted that the IMF program includes extensive reforms such as broadening the tax base, eliminating exemptions, and promptly adjusting energy tariffs to restore the energy sector’s viability. Additional measures focus on enhancing the management and privatization of state-owned entities (SOEs), phasing out agricultural support prices and associated subsidies, and gradually liberalizing trade policies.
Moody’s also underscored potential challenges ahead, noting that social tensions stemming from increased living costs could hinder reform implementation, particularly with regard to higher taxes and future adjustments in energy tariffs. “Furthermore, there are risks associated with the coalition government’s ability to maintain strong electoral support for sustained reform efforts,” the agency added.
