Summary Pakistan benefited from the disbursement of IMF resources under its Extended Fund Facility: Fitch
ISLAMABAD (Web Desk) - The expected new allocation of special drawing rights (SDR) by the IMF could bolster reserves by USD2.8 billion in Pakistan whereby it is expected that the IMF’s board of governors to approve the allocation in August, says Fitch Ratings.
In a recent research report “External Liquidity Strains Ease in Some APAC Frontier Economies”, Fitch Ratings noted that external positions have strengthened for most rated frontier sovereigns in Asia over 1H21, reducing downside risks to ratings.
Pakistan has benefited from the disbursement of IMF resources under its Extended Fund Facility with the completion of the “combined second through fifth reviews” last March, and more recently from Saudi Arabia’s agreement in June to an oil assistance package for Pakistan that the FT reported could be worth up to USD1.5 billion.
The report further added that the Pakistan have raised funds in the international market through bond issuance, easing near-term liquidity pressures. Pakistan raised USD2.5 billion in bonds in March.
Going by the report, in some countries, restrictions and effects associated with Covid-19 have continued to dampen demand for imported goods and services, even as exports have recovered from the initial pandemic shock, bolstering external positions.
In Pakistan, the goods trade deficit widened sharply in 1Q21, driven partly by the higher cost of oil imports. In Pakistan, the government’s adherence to a market-determined exchange-rate regime will continue to serve as a shock-absorber and should help keep the current account deficit contained. Pandemic-related trade distortions are likely to ebb in the coming months with the rollout of vaccine programs globally, but this process could be lengthy in countries where vaccination moves slowly.
Remittances have been another source of support to external positions since the start of the pandemic, and remain surprisingly strong, with inflows in May 2021 up by 33.5% in Pakistan, the report said.
