Yet another disturbing news for the Pakistani economy
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The economic and political uncertainty will challenge the pace of Pakistan’s fiscal consolidation in the fiscal year 2023, says Moody’s Investors Services (Moody’s).
The credit rating agency in its latest report “Government of Pakistan – B3 negative, Annual credit analysis, overview, and outlook”, stated that the credit profile of Pakistan reflects its low fiscal strength, weak institutions and governance strength, heightened external vulnerability risks, and elevated political risks, balanced against a large economy and robust growth potential.
The social risk in the country is also highly negative, reflecting low household incomes, limited access to quality healthcare and basic services, and ongoing safety concerns in the country that limit investment opportunities said the rating agency in the report.
Pakistan’s external vulnerability risk has risen and has been amplified by rising inflation, which adds stress to the current account, the currency, and foreign-exchange reserves, especially during heightened political and social risk, it added.
The negative outlook is driven by Pakistan’s heightened external vulnerability risk and uncertainty around the sovereign’s ability to secure additional external financing to meet its needs. The negative outlook signals that a rating upgrade is unlikely over the near term, it added.
The outlook could be changed to stable if Pakistan’s external vulnerability risks decreased significantly and durably. This could come from access to substantial external financing that significantly raises foreign-exchange reserves. A resumption of fiscal consolidation, including through the implementation of revenue-raising measures, pointing to a significant improvement in debt affordability would also be credit positive.
Conversely, the rating could be downgraded if there were further deterioration in Pakistan’s external position that would threaten the government’s external repayment capacity and balance of payments stability. This could come from protracted negotiations with the IMF, resulting in delays in securing additional financing from the IMF or other sources beyond 2022.
