*ISLAMABAD – Pakistan will turn to the International Monetary Fund (IMF) tomeet its external financing needs, Moody’s Investors Service said in a noteon Friday.*
With the election results almost complete, the PTI looks set to form amajority government with the help of independents and smaller parties,putting fears of a hung parliament or weak coalition to rest. However, thePTI-led government will face serious challenges on the economic front.
“Pakistan’s heightened external vulnerability is the chief creditchallenge,” said Moody’s, an independent ratings agency that assessescountries’ credit risk. Pakistan’s present dollar reserves provide only twomonths’ cover to pay for imports, which need to improve to avoid a crisis.
The possible policy options for the PTI would be monetary and fiscaltightening, Moody’s said. It expects the exchange rate to depreciate andadds that Pakistan will turn to the Washington-based lender for anotherbailout package.
PTI’s election pledge also includes increasing social spending, reducingtaxes – as part of tax reform plans – and lowering energy costs. In thelonger term, Pakistan’s credit challenges include the country’s very lowglobal competitiveness, institutional weaknesses relating to governance,rule of law and control of corruption, and a narrow tax base.
The New York-based investors’ service said the ongoing implementation ofthe China-Pakistan Economic Corridor will drive improvements in powersupply and infrastructure and help raise economic competitiveness and boostindustrial activity over time. Improving governance, reducing corruptionand widening its narrow tax base will be challenging for the newgovernment, it cautioned.