Pakistan is facing the challenge of repaying a total of $3.7 billion in debt payments during May-June, with $700 million due in May and another $3 billion in June, according to Fitch Ratings.
The country is struggling to secure a $6.5 billion bailout from the International Monetary Fund (IMF), which has been on hold since November 2022. The pressure is mounting as the foreign exchange reserves, which only cover about a month of imports, come under pressure. Although Pakistan has obtained financing support from countries in the Middle East and China, it needs to resume its IMF bailout program to avert default.
The debt payments highlight the urgent need to reach an agreement with the IMF, which is due to end in June. However, the risks are high, as reflected in Fitch’s downgrade of Pakistan’s rating in February, which raised the possibility of default or debt restructuring. Pakistan’s economy is in crisis, with inflation at a record high of 36.4%, the highest in its history and in South Asia.
Political tensions continue to mount, with a bruising battle between the government and former prime minister Imran Khan. The government has implemented various measures to qualify for IMF funding, such as lifting exchange rate caps, imposing taxes, raising energy tariffs, scaling back subsidies, and increasing interest rates to a record 21%.
Despite the finance minister’s assurance that Pakistan will not default, the risks are large, and Fitch’s rating cut highlights the increasing possibility of default or debt restructuring.
