Political Uncertainty in Pakistan May Hinder IMF Financing Agreement, Warns Fitch Ratings

The growing evidence of the involvement of Pakistani military-led establishment in unprecedented rigging in the February 8 elections, which have clearly been won by the opposition Pakistan Tehrik e Insaf whose leader and former prime minister Imran Khan remains in jal, has put Pakistan on the slippery slope of unending cycle of political instability. Economists across the spectrum agree that Pakistan needs political stability, peace and major economic reforms to salvage its tanked economy, which as of now remains a distant possibility.

Posted on 02/19/24
The growing evidence of state sponsored unprecedented rigging in February 8 elections has brought more political instability and will complicate its economic challenges even more. (Photo via video stream)
Fitch Ratings has raised concerns about the potential impact of Pakistan’s recent election outcome on the country’s ability to secure a financing agreement with the International Monetary Fund (IMF). The “close outcome” of the election and resulting political uncertainty could complicate negotiations for a new deal to succeed the expiring Stand-By Arrangement (SBA) in March 2024.

According to Fitch Ratings, a new IMF deal is crucial for Pakistan’s credit profile. The agency assumes that such an agreement will be achieved within a few months, but warns that extended negotiations or failure to secure it could increase external liquidity stress and raise the probability of default.

Despite recent improvements in Pakistan’s external position, with net foreign reserves rising to USD 8.0 billion as of February 9, 2024, concerns persist regarding the country’s ability to meet projected external funding needs. The State Bank of Pakistan’s reported reserves still fall short relative to these needs, with less than half of the USD 18 billion funding plan met in the first two quarters of the fiscal year ending June 2024.

The upcoming government, likely to be a coalition of the Pakistan Muslim League-Nawaz party and Pakistan People’s Party, faces the urgent task of securing financing from multilateral and bilateral partners. Negotiating a successor deal to the SBA and adhering to its policy commitments will be critical to securing external financing flows and shaping the country’s economic trajectory.

Finalizing a new IMF deal is expected to be challenging, given the interim nature of the current SBA and the likelihood of tougher conditions for any successor arrangement. Continued political instability could further complicate discussions with the IMF and delay assistance from other partners.

Despite Pakistan’s poor track record of completing IMF programs, there is optimism regarding the potential for reform consensus within the country. However, policy risks could rise again over time if external liquidity pressures ease, underscoring the need for structural improvements in Pakistan’s external finances.

Fitch Ratings emphasizes the importance of developing a private sector capable of generating increased export income, attracting foreign direct investment (FDI), or reducing import dependence to strengthen Pakistan’s external finances in the long term.

While Pakistan faces significant economic challenges, navigating the political landscape and securing external financing will be critical in shaping the country’s future economic.

The growing evidence of the involvement of Pakistani military-led establishment in unprecedented rigging in the February 8 elections, which have clearly been won by the opposition Pakistan Tehrik e Insaf whose leader and former prime minister Imran Khan remains in jal, has put Pakistan on the slippery slope of unending cycle of political instability. Economists across the spectrum agree that Pakistan needs political stability, peace and major economic reforms to salvage its tanked economy, which as of now remains a distant possibility.

Check Also

Rights Groups: Repression in Pakistan Worse 1 Year After Assault on Military Installations

Human rights defenders say political repression in Pakistan has increased in the year since supporters …

Pakistani Military Admits to Political Meddling, Wants Khan to Apologize

The implied admission of blatant political interference by Pakistani generals has plunged the South Asian nation further into turmoil, potentially eroding the facade of civilian governance altogether.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Discover more from ViewsWeek

Subscribe now to keep reading and get access to the full archive.

Continue reading