- A tough climb ahead
So rare is even a minor piece of progress under the PTI that PM’s Finance Adviser Dr Hafeez Shaikh waxed effusive over Moody’s upgradation of Pakistan’s outlook to stable from negative. But as Federal Planning Minister Asad Umar rightly put it, the main utility of the upgradation by Moody’s is that it would help improve access to financing and reduce its cost. Pakistan will thus be better placed as it launches a Eurobond and a Sukuk worth around $2 billion in the world markets in the next couple of months. While these will provide Pakistan much needed financing, these will also add to Pakistan’s debt burden. Pakistan paid over $1 billion on Monday against a matured Sukuk floated in November 2014.This shook up the foreign currency reserves, which stood at $8.68 billion in the week ending on November 22.
Moody’s rating is dependent on hopes and expectations like the balance of payments dynamics would continue to improve, supported by policy adjustments and currency flexibility. Moody’s is however careful. It expects the government’s fiscal deficit to remain relatively wide at around 8.6 per cent of GDP in fiscal 2020 compared to 8.9 per cent in fiscal 2019, before narrowing to an average of around 7 per cent over the fiscal 2021-2023. The next two years are thus going to be lean.
There is a lot for the economic managers to do to ensure improvements in the economy. As national media has pointed out, Pakistan’s economic fundamentals, including its strength and susceptibility to event risk, had not materially changed even though institutional strength had avowedly increased. The IMF has noted that Pakistan’s credit strengths are balanced against structural constraints to economic and export competitiveness, the government’s low revenue generation capacity that weakens debt stability, and that fiscal strength that will remains weak over the foreseeable future as well as political and still material external vulnerability risks. The government would do well under the circumstances to improve relations with the opposition and undertake moves to ensure peace in the region.
Moody’s upgradation of Pakistan’s outlook to ‘stable’ from ‘negative’ is a good sign for the economy provided further steps are taken to bring it out of the doldrums.