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LONDON – Pakistan’s continuous progress under the IMF’s Extended Fund Facility is credit positive, because it suggests that the government is broadly on track with EFF-prescribed reforms, British media reported on Thursday.
According to “Moody’s” report, any loss of reform momentum could strain the country’s ability to repay its debts. Political willingness to push ahead with reforms will be crucial. Moody’s had revised its outlook on the sovereign’s rating to stable from negative in July. This progress should secure the next tranche of IMF funding, which is key to bolstering its external liquidity position and ensuring macroeconomic stability, the rating agency said. Pakistan’s ability to drive structural reforms, despite resurgent political fractiousness, would be a key factor supporting its credit profile. Although discussions are ongoing, successful completion of the fourth review and approval by the IMF’s management board would allow the release of $569m in September, taking cumulative disbursements under the 36-month, $6.8b programme to $2.8b, Moody’s noted. This would buoy up Pakistan’s foreign reserves, which climbed to $9.6b in July from $2.8b in early February, but had edged down to $9.2b by August. However, reserves still exceed debt repayments due in the fiscal year ending 30 June, 2015.

The IMF noted improved macroeconomic performance and estimated that real GDP growth will rise slightly to 4.3pc in fiscal 2015, from 4.1pc in fiscal 2014 supported by firming confidence in the economy. The economic confidence in Pakistan is reflected in the recovery in private sector credit, which increased 8pc in May from a year earlier, the highest rate in more than five years. A reduction in government borrowing from the banking system freed up the flow of credit to the private sector. A ceiling on net borrowings from the State Bank of Pakistan is a quantitative criterion that the IMF requires Pakistan to meet, although the country slightly exceeded the ceiling in the fourth quarter of fiscal 2014. The containment of central bank monetisation of government budget deficits also helped to curb inflation, which has been trending downward since April this year and stood at 7.9pc year on year in July. The IMF programme requires Pakistan to meet 21 structural benchmarks, including energy and tax reforms and enhanced revenue collection.