Pakistan's ongoing fuel shortage that has led to worsening power blackouts is weighing on its credit worthiness and hindering its ability to meet key reform targets laid out by the IMF, ratings agency Moody's warned on Monday.
The country is currently in the grip of one of its worst power crises in years due to a shortfall in imported oil, with the situation exacerbated on Sunday by an attack on a key powerline in restive Baluchistan province.
Moody's said that increasing energy imports without addressing structural issues that create so-called circular debt "will further strain Pakistan's budget and balance of payments, a credit negative".
"Fuel shortages also reflect the strained finances of state-owned distribution companies and the fuel importer, Pakistan State Oil corporation, and are a setback to the sector's progress on reforms made so far under Pakistan's financial support programme with the International Monetary Fund."
The IMF granted a $6.6-billion loan to Pakistan in September 2013 on the condition that it carry out extensive economic reforms, particularly in the energy and taxation sectors.
Moody's, which in July 2014 upgraded Pakistan's rating outlook from "negative" to "stable" in a boon for the shaky South Asian economy, said that structural reforms had been a "key driver" in its decision last year.
"Circular debt" brought on by the dual effect of the government setting low electricity prices and customers failing to pay is at the heart of the crisis. State utilities lose money, and cannot pay private power generating companies, which in turn cannot pay the oil and gas suppliers, who cut off the supply.