Moody’s Investors Service has viewed the no-confidence motion as creditnegative for Pakistan on Monday because it raises significant uncertaintyover policy continuity, as well as the government’s ability to continue toimplement reforms to increase productivity growth and secure externalfinancing, including from the International Monetary Fund (IMF).
Moody’s in its latest report said that the aforestated move might createdifficulties to secure external financing, including from the InternationalMonetary Fund (IMF).
A further deterioration in Pakistan’s external position, includingsignificant widening of the current account deficit and erosion of foreignexchange reserves, would threaten the government’s external repaymentcapacity and heighten liquidity risks, it cautioned.
The agency said that Pakistan had faced significant pressure on itsforeign-exchange reserves in recent months, amid elevated global commodityprices and a recovery in domestic demand.
The Russia-Ukraine military conflict that drove up the global commodityprices has amplified pressure on Pakistan’s external position. The countryis a net oil importer, with petroleum and related products accounting forabout 20% of total imports.
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“We now expect the deficit to widen to 5-6% of GDP in fiscal 2022 (endingJune 2022) compared with our previous forecast of 4%,” Moody’s stated.“This further widening will place immense pressure on Pakistan’s foreignreserves, which declined to $14.9 billion as of February 2022 from $18.9billion in July 2021 which are sufficient to cover only around two monthsof imports.”
Securing external financing, including from the IMF, will be key forPakistan to continue to meet its external obligations given the pressureson its foreign-exchange reserves.
However, the no-confidence motion raises significant uncertainty over thegovernment’s capacity to commit to implementing reforms, particularly thoseaimed at broadening the revenue base. How Pakistan will approach the IMFprogram from this point on is uncertain, and its participation could be indoubt, the agency said.
