ISLAMABAD: Pakistan’s indecisive election outcome and the resulting political uncertainty could complicate the country’s efforts for a new International Monetary Fund (IMF) bailout program, a US-based global rating agency said on Monday.
The Feb. 8 national election in Pakistan presented no clear winner, with independent candidates, backed by former premier Imran Khan, forming the largest group in parliament, according to official results.
The indecisive vote has left the parties of former PM Nawaz Sharif and former foreign minister Bilawal Bhutto-Zardari, which came in second and third, struggling to form a minority coalition government.
Both Sharif and Khan have claimed victory in polls, leading to uncertainty regarding the formation of the new government in the South Asian country that barely averted a default last year, thanks to a $3 billion IMF program.
“The close outcome of Pakistan’s election and resulting near-term political uncertainty may complicate the country’s efforts to secure a financing agreement with the IMF, to succeed the Stand-By Arrangement (SBA) expiring in March 2024,” Fitch Ratings said in a statement.
“A new deal is key to the country’s credit profile, and we assume one will be achieved within a few months, but an extended negotiation or failure to secure it would increase external liquidity stress and raise the probability of default.”
The nuclear-armed nation of more than 241 million has been grappling with a slow growth and record inflation and needs a stable government with the authority to take tough decisions.
On Monday, Pakistan’s sovereign dollar bonds fell as much as 1.2 cents, Tradeweb data showed, with the 2024 bond standing at 95.89 cents in the aftermath of the contentious election.
Analysts say negotiating a new IMF program, and at speed, will be critical for the new government.
Fitch Ratings said continued political instability in the country could prolong any discussions with the IMF, delay assistance from other multilateral and bilateral partners, or hamper the implementation of reforms.
“We believe a government will assume office and engage with the IMF relatively quickly, but risks to political stability are likely to remain high,” it added.
