Islamabad :: With Pakistan facing political turmoil and a sliding economy,further deterioration in its external position including widening ofcurrent account deficit and erosion of foreign exchange reserves, wouldthreaten the government’s external repayment position, global credit ratingagency Moody’s has said.
The agency said that further deterioration in external position wouldheighten liquidity risks, reported The News International.Pakistan faced significant pressure on its foreign-exchange reserves inrecent months, amid rising global commodity prices and a recovery indomestic demand.
The Russia-Ukraine military conflict, which has hiked global commodityprices, has amplified pressure on the country’s external position. Thecountry is a net oil importer with petroleum and related productsaccounting for about 20 per cent of total imports.In its statement, covering the period preceding the passage of ano-confidence motion against the PTI government, issued on Monday, Moody’ssaid that on March 28, opposition parties in Pakistan tabled ano-confidence motion against the government, reported The NewsInternational.
“We view the no-confidence motion as credit negative because it raisessignificant uncertainty over policy continuity, as well as the government’sability to continue to implement reforms to increase productivity growthand secure external financing, including from the International MonetaryFund (IMF),” the statement said.The no-confidence motion came at a time when Pakistan is facing surginginflation and a widening current account deficitlink> amidrising global commodity prices, reported The News International.
“We now expect the deficit to widen to 5-6 per cent of GDP in fiscal 2022(ending June 2022) compared with our previous forecast of 4 per cent. Thisfurther widening will put greater pressure on Pakistan’s foreign reserves,which declined to USD 14.9 billion as of February 2022 from USD 18.9billion in July 2021, according to IMF data, sufficient to cover onlyaround two months of imports,” the Moody’s statement added.
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Securing external financing, including from the IMF, will be the key tocontinuing to meet Pakistan’s external obligations given the pressures onits foreign-exchange reserves.How Pakistan will approach the IMF programme from this point on isuncertain, and its participants could be in doubt, The News Internationalreport said.
Pakistan is undergoing its seventh review under the IMF’s Extended FundFacility program, which has disbursed USD 3 billion out of the stipulatedUSD 6 billion to date.However, the discussions between Pakistan and the IMF appear to havestalled since early March, with the IMF expressing concerns over the PTIgovernment’s relief package in response to rising inflation.