Pakistan Faces Risk of Default Without IMF Bailout Loans, Moody’s Warns

Pakistan Faces Risk of Default

Moody’s, one of the world’s leading credit rating agencies, has warned that Pakistan could default on its debt without the support of the International Monetary Fund (IMF). The IMF has been providing financial assistance to Pakistan for several years to help the country meet its external financing needs and stabilize its economy.

According to Moody’s, Pakistan’s external debt has risen sharply in recent years, increasing the country’s vulnerability to external shocks. The COVID-19 pandemic has further exacerbated Pakistan’s economic challenges, leading to a widening current account deficit and a depletion of foreign exchange reserves. Moody’s predicts that Pakistan’s external debt will continue to rise in the coming years, making it increasingly difficult for the country to meet its debt obligations.

Moody’s also noted that Pakistan’s government has limited fiscal space to address its economic challenges, given its low revenue collection and high debt servicing costs. The agency warned that without IMF support, Pakistan’s external debt payments could become unsustainable, leading to a potential default.

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Pakistan has received several IMF bailout loans over the years, with the most recent being a $6 billion loan approved in 2019. However, the IMF has suspended its loan program with Pakistan since April 2020 due to the government’s failure to meet its reform targets. The IMF has urged Pakistan to implement structural reforms to address its fiscal and external imbalances, including revenue mobilization, energy sector reforms, and exchange rate flexibility.

Pakistan’s government has announced a series of economic reforms to address its challenges, including a tax amnesty scheme, energy sector reforms, and an austerity program. However, these measures have faced significant political opposition and implementation challenges, limiting their effectiveness.

In conclusion, Pakistan Faces Risk of Default Moody’s warning highlights the urgent need for Pakistan to address its economic challenges and seek IMF support to avoid a potential default. The government must implement structural reforms to address its fiscal and external imbalances and improve its debt sustainability. At the same time, the IMF should continue to engage with Pakistan to provide the necessary financial assistance and technical support to help the country overcome its economic challenges.