Fitch Ratings has said that IMF SDR Allocation for Pakistan has increased and it can allow Pakistan up to $2.8 billion drawings from IMF. This is expected to improve improve the external position and reduce downside risks to the Pakistan’s credit ratings.
Fitch added, “All six frontier markets should benefit from the expected new allocation of special drawing rights by the IMF. It can bolster Sri Lanka’s reserves by $780 million and Pakistan by $2.8 billion. We expect the IMF’s board of governors to approve the allocation in August.”
The IMF SDR Allocation for Pakistan is seen as a buffer for the country’s financial cycles. As Pakistan re-configures its economy, especially in a post COVID environment, a buffer is needed to maintain economic stability.
Fitch Ratings affirmed Pakistan’s long-term foreign-currency issuer default rating at ‘B-‘ with a stable outlook that reflects weak public finances, external finance vulnerabilities, and low governance indicator scores.
Fitch further elaborated that Pakistan’s official foreign exchange reserves will reach $17.4 billion – 3.2 months of current external payments by the end of the fiscal year to June 2021 from $13.3 billion at FYE20. Reserves are expected to rise to $22.3 billion by FY22, including a planned $2.8 billion boost from the IMF’s special drawing rights allocation. Pakistan’s current account deficit is expected to narrow to 0.5% of GDP in FY21, from 1.7% in FY20, mainly due to a higher remittance inflows, import compression and low average oil prices.
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