ISLAMABAD: Moody’s Investors Services (Moody’s) flags ongoing political uncertainty in Pakistan following inconclusive election outcomes, labeling it as a credit negative. In its recent report on Pakistan, the rating agency highlighted the persistent ambiguity surrounding Pakistan’s ability to swiftly negotiate a new International Monetary Fund (IMF) program, especially after the expiration of the current one in April 2024, posing significant risks.
The report underscores that Pakistan’s governmental liquidity and external vulnerability risks will persistently loom until there’s clarity on a credible longer-term financing strategy. The general election held on 8 February resulted in a hung parliament, with the vote count concluding on 11 February. None of the parties managed to secure the necessary majority of at least 134 out of the 266 contested seats to form a government.
While negotiations among parties to form a coalition government are underway, prolonged delays in the process could exacerbate political and policy uncertainties, coinciding with Pakistan’s confronting substantial macroeconomic challenges, particularly its frail external and liquidity positions.
According to Pakistan’s Election Commission, independent candidates, largely supported by Imran Khan’s Pakistan Tehreek-e-Insaf (PTI) party, secured 101 seats, while the Pakistan Muslim League-Nawaz (PML-N), led by former Prime Minister Nawaz Sharif, secured 75 seats, and the Pakistan Peoples Party (PPP) secured 54 seats. Other smaller parties won the remaining seats.
The inconclusive election results have heightened political tensions amid allegations of vote rigging and tampering by the PTI, resulting in protests across various cities. Additionally, the outcomes have initiated a complex process of parties seeking support from one another to form a coalition government.
Further delays in government formation could escalate policy and political uncertainties, especially at a time when the country grapples with daunting macroeconomic conditions. Pakistan’s foreign exchange reserves stand at a mere $8 billion as of 2 February, sufficient to cover approximately six weeks of imports, significantly below the required amount to meet its external financing needs for the next three to four years.
According to an IMF report from January, Pakistan’s external financing needs amount to about $22 billion in fiscal 2025 (ending June 2025) and approximately $25 billion annually in fiscal 2026 and 2027. Consequently, the country urgently requires a comprehensive longer-term financing plan to address its substantial financing requirements in the coming years, especially after the conclusion of its current IMF program in April 2024.
