The economic and political uncertainty will challenge the pace ofPakistan’s fiscal consolidation in the fiscal year 2023, says Moody’sInvestors Services (Moody’s).
The credit rating agency in its latest report “Government of Pakistan – B3negative, Annual credit analysis, overview, and outlook”, stated that thecredit profile of Pakistan reflects its low fiscal strength, weakinstitutions and governance strength, heightened external vulnerabilityrisks, and elevated political risks, balanced against a large economy androbust growth potential.
The social risk in the country is also highly negative, reflecting lowhousehold incomes, limited access to quality healthcare and basic services,and ongoing safety concerns in the country that limit investmentopportunities said the rating agency in the report.
Pakistan’s external vulnerability risk has risen and has been amplified byrising inflation, which adds stress to the current account, the currency,and foreign-exchange reserves, especially during heightened political andsocial risk, it added.
The negative outlook is driven by Pakistan’s heightened externalvulnerability risk and uncertainty around the sovereign’s ability to secureadditional external financing to meet its needs. The negative outlooksignals that a rating upgrade is unlikely over the near term, it added.
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The outlook could be changed to stable if Pakistan’s external vulnerabilityrisks decreased significantly and durably. This could come from access tosubstantial external financing that significantly raises foreign-exchangereserves. A resumption of fiscal consolidation, including through theimplementation of revenue-raising measures, pointing to a significantimprovement in debt affordability would also be credit positive.
Conversely, the rating could be downgraded if there were furtherdeterioration in Pakistan’s external position that would threaten thegovernment’s external repayment capacity and balance of payments stability.This could come from protracted negotiations with the IMF, resulting indelays in securing additional financing from the IMF or other sourcesbeyond 2022.