Delays in an agreement with the IMF prompted Moody’s rating agency to downgrade Pakistan’s long-term foreign debt rating by two notches to a historic low of Caa3 on Monday. It also matched the February 14 decision of Fitch Ratings by cutting Pakistan’s credit rating to CCC- from CCC+. Both those ratings are just above what would be considered default status.

The hoped-for resumption of IMF funding in March is expected to trigger other billion-dollar inflows of financial help from allies Saudi Arabia and the United Arab Emirates, as well as project funding from multilateral lenders like the World Bank and Asian Development Bank.

“History attests to the fact that a narrow oligarchic elite dominates Pakistan’s politics and economy, and has long been averse to structural reforms, which is the only way Pakistan can extricate itself from regular financial crises,” she said.

03:15

Pakistan residents struggle to make a living amid soaring fuel prices

Pakistan residents struggle to make a living amid soaring fuel prices

Michael Kugelman, director of the South Asia Institute at the Wilson Centre, a Washington-based think tank, said Pakistan’s elite often rule out structural reforms “because it is inherently invested in the status quo, and all the benefits that entails for vested interests”.

Up to this point, those leaders “haven’t had the political spine” to impose changes, he said, which suggests that it “all comes down to the leadership factor”.

Ex-ambassador Lodhi said Pakistan needed “a different kind of political leadership to put the country on a path to sustainable economic growth”.

Islamabad has in recent weeks bowed to the IMF’s demands to reduce its budgetary deficit by increasing taxes on consumption and eliminating subsidies, so as to secure the final tranche of a programme agreed in 2019.

But with Pakistan needing US$35 billion in external financing for each of the next three financial years, starting this July, to cover debt repayments and imports, former officials said more loans would be needed to avoid a default.

“When this programme ends in June, we will probably not have much more than US$10 billion in reserves, if that. That would be about a month-and-a-half of import cover,” said former finance minister Miftah Ismail, in a recent television interview.

Islamabad opened talks with financial advisory firm Rothschild & Co on February 20, in a move widely seen as a precursor to the restructuring of Pakistan’s foreign debts of some US$100 billion, about 30 per cent of which is held by China.

The IMF, however, remains opposed to any debt restructuring.

“Pakistan needs to be able to function as a country and not to get into a dangerous place where its debt needs to be restructured,” IMF Managing Director Kristalina Georgieva said, in a February 18 interview with German state broadcaster Deutsche Welle.

She said the Fund is pressing Pakistan to increase revenues by taxing the rich and “moving subsidies only towards the people who really need it”.

02:50

Pakistan rupee plunge after government lifts exchange rate cap to comply with IMF terms

Pakistan rupee plunge after government lifts exchange rate cap to comply with IMF terms

However, former State Bank of Pakistan deputy governor Murtaza Syed said the country needed immediate debt relief if it was to service its foreign debts and make the fiscal adjustments required by the IMF.

About 40 per cent of Pakistan’s population live under the World Bank’s lower middle-income poverty line of US$3.20 per day in 2021.

“If this issue is not resolved, then there will be a lost decade for Pakistan,” Syed said.

Consumer price inflation hit an all-time high of 31.6 per cent year-on-year in February, according to figures released on Wednesday by the Pakistan Bureau of Statistics.

It said the recent enactment of IMF conditions last week more than doubled natural gas rates and hiked cigarette prices by more than 75 per cent.

International ratings agencies expect Pakistan’s inflation rate to average more than 30 per cent in the first half of 2023.