Pakistan’s Credit Outlook Upgraded to ‘Stable’ By Moody’s, After 17 Grueling Months in the ‘Negative’

DESPARDES — Using the SMART approach and skillful handling of Strategic Control of Resource Elements (SCORE) the PTI-led government appears to have non-alarmed two leading players: Moody’s and the IMF.

Moody’s announced Monday it’s upgrading Pakistan’s outlook to ‘stable’ citing its expectations that the balance of payments dynamics will continue to improve, supported by policy adjustments and currency flexibility.

The announcement pushed Pakistan’s stock market above 40,000 points– for the first time in 10 months — a sign of business community sentiments getting over the initial jerks, shocks and awes as PM Khan’s team stepped into the power corridors, in a first.

The New York-based investors credit rating agency also highlighted progress made by the new team in Islamabad towards macroeconomic stabilization with reduced vulnerabilities on the external account.

It however noted that fiscal strength would remain weak over the foreseeable future due to structural constraints to economic and export competitiveness and the government’s low revenue generation capacity — symptoms that have been affecting the country’s fiscal management since more than a decade, observers say.

“Add to it the foot-dragging during the period to try closing the huge gap between documented and undocumented economy.”

The leading credit rating agency expects Pakistan’s current account deficit to continue narrowing in the current and next fiscal year (ending June of each year), averaging around 2.2% of GDP, from more than 6% in fiscal 2018 (the year ending June 2018) and around 5% in fiscal 2019.

The dollar-saved-dollar-earned approach by PM Khan’s government coupled with austerity in the short to medium term, and new focus (hitherto absent) on non-conventional revenue streams (religious tourism, olive exports and similar) in the long term are expected to carry the day, observers say.

ALSO READ: A Dollar Saved is Dollar Earned: PTI-Govt’s Fiscal Management Amid Slowing Economy

In the meanwhile, a comparatively high inflation rate (primarily due to dollar devaluation) and absence of any significant relief to the common man remain talking points.

Pakistan continues to have a narrow direct tax base, which has created a heavy skew on the curve between direct and indirect taxes, experts say.

Still, Moody’s credit rating upgrade from ‘negative’ to ‘stable’ for Pakistan will help influence foreign investors’ decision-making process –given its large consumer base fueled by a huge youth bulge.

The agency expressed hope that the help from the International Monetary Fund (IMF) mitigates the risks to its economy. As part of its $6 billion loan program review, the IMF said in November, “Despite a difficult environment, program implementation has been good, and all performance criteria for end-September were met with comfortable margins.”

Moody’s had downgraded Pakistan’s ratings outlook to negative last year in June, citing heightened external vulnerability risk due to depleting foreign exchange reserves.

With inputs from Irshad Salim, Khurram Shahzad, Arun Dean

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