Experts Say Pakistan’s Economic Stability to Improve after Debt Rollovers

On Thursday, Pakistani financial analysts said that the economic stability of the country would improve. This was after Saudi Arabia, China and the United Arab Emirates agreed to rollover its debt.

The measure is expected to pave the way for the final approval for the new loan program from the International Monetary Fund (IMF) worth $7 billion.

The Debt Rollover

On Tuesday, Bloomberg reported that Pakistan was successful in securing debt rollover commitments from the United Arab Emirates (UAE), China and Saudi Arabia for a year.

Pakistan and the IMF had reached a staff-level agreement last month for a new loan program of $7 billion. However, it still needs a final nod of approval from the executive board of the lender.

Pakistan has been grappling with a weak currency, low foreign exchange reserves and soaring inflation. Since 2022, the country has been struggling to keep its fragile economy worth $350 billion going.

In April, the South Asian nation managed to complete a short-term IMF program worth $3 billion. Islamabad had been able to avoid a sovereign default in the previous year, thanks to this program.

But, to get a fresh bailout, the IMF reportedly demanded that Islamabad get its bilateral donors to make financial commitments.

The Impact

The Sustainable Development Policy Institute (SDPI)’s joint executive director, Dr. Vaqar Ahmed, said that the expected loan from the IMF and the debt rollover would improve the economic stability.

He said that the approval from the IMF’s board could upgrade Pakistan’s credit rating and also boost investor confidence.

Dr. Ahmad further added that Pakistan would also see its access to international markets improve due to the IMF nod and debt rollovers.

The government would then be able to issue panda bonds and sovereign bonds at a lower rate. The former are Chinese yuan-denominated bonds that are issued in Chinese bond markets by Pakistani entities.

They would be able to raise funds in yuan, access Chinese investors and diversify funding alliance. This would help reduce reliance on USD-denominated debt.

According to Dr. Ahmad, future borrowing costs would also go down when the credit rating improves.

This would give the government the room it needs for implementing key state-owned enterprises and energy reforms.

The IMF

He also warned the government to not fall short of implementing the reforms mandated by the IMF. This is applicable to reforms related to taxation, energy and state-owned enterprises.

The IMF wants Pakistan to expand is tax base, boost competition, improve human capital, obtain investment, manage state-owned enterprises in a better way and increase social protection.

Dr. Ahmad said that the IMF would critically look at these reforms and there could be delays if the requirements are not fulfilled.

But, he also added that it was not sustainable to rely on bilateral creditors to agree to regular debt rollovers.

Doing so would increase the cost of borrowing and reduce debt market options. It only provides short-term room to the government.

However, it is true that it would help increase access to international markets and this could benefit the country.