—Moody’s forecasts current account deficit for ongoing FY21 at 2 per cent of GDP compared to 1.1 per cent recorded in FY20
LAHORE: Moody’s on Saturday confirmed Pakistan’s credit rating at B3 with the outlook at stable after it had initiated a review for downgrade in May earlier this year.
The stable outlook reflects Moody’s view that the pressures Pakistan faces in the wake of the coronavirus shock and prospects for its credit metrics, in general, are likely to remain consistent with the current rating level.
The rating agency said it expects Pakistan’s economic growth to be positive but will be low around 1pc-2pc for the ongoing fiscal year 2020-21 ending June 2021, after experiencing a recession in the previous fiscal year 2019-2020.
It added that Pakistan’s economy was relatively closed with a low reliance on exports and movement restrictions due to the pandemic will keep economic activity below the pre-outbreak levels for some time.
Meanwhile, Moody’s shared that the slow economic recovery will impact government revenue, keeping the fiscal deficit wide at around 8-8.5 per cent of GDP in the ongoing fiscal year (FY21) which will be at similar levels compared to FY20.
This, in turn, will result in the government’s debt burden remaining high at around 90 per cent of GDP by the end of FY21.
However, external financing needs have declined compared to the fiscal year 2018-19 because of a narrow current account deficit, which occurred due to macroeconomic adjustments over the past two years and continues to be assisted by effective policies including currency flexibility.
Moreover, it forecast the current account deficit (CAD) for ongoing FY21 at 2 per cent of GDP compared to 1.1 per cent recorded in FY20 and substantially narrower than the average of around 5.5 per cent in FY19.
“Stability in the balance of payments will, in turn, allow the State Bank of Pakistan, the central bank, to keep monetary policy accommodative as inflation declines.
This keeps a lid on borrowing costs for the government domestically and lends further support to debt affordability,” it explained.
“The coronavirus pandemic is weighing on economic activity in Pakistan, resulting in lower tax revenue, a wider fiscal deficit, and a higher debt burden for the government.
While the continued spread of the virus poses downside risks to the economy and government finances, financial and technical support from development partners mitigates external vulnerability and liquidity risks,” said Moody’s.
“The government’s commitment to its current International Monetary Fund (IMF) Extended Fund Facility (EFF) continues to unlock a large financial envelope that Moody’s expects will cover its external financing needs over the next 12-18 months and provides an anchor for ongoing fiscal reforms.
Meanwhile, Federal Minister for Planning and Development Asad Umar tweeted on Saturday that assigning a ‘stable’ outlook to Pakistan by Moody’s Investor Services is a ‘testimony’ to the country’s ‘V-shaped’ recovery amid the coronavirus pandemic.
“Moody’s reconfirmed Pakistan’s credit rating with a stable outlook. In the middle of a global pandemic it is a testimony to the V-shaped recovery Pakistan has seen with PM Imran Khan balanced approach to safeguarding national health & livelihoods, delivering success on both counts,” Umar wrote in a tweet post.
Economic Affairs Minister Hammad Azhar also lauded Moody’s confirmation of Pak’s B3 rating, terming the development an ‘encouraging sign’ for Pakistan’s economy.
“Pak’s rating was downgraded to B3 negative in June 2018 based on data/policies of pmln’s term. In Dec 2019, after econ stabilsation by PTI govt, rating was upgraded to B3 Stable,” he stated on social media.
Moreover, through his Twitter handle, Maritime Affairs Minister Ali Zaidi shared a video, wherein analyst Bilal Lakhani hightailed some of the reforms initiated by the government which helped improve the country’s macroeconomic indicators.
“Pakistan’s macroeconomic indicators moving in the right direction as Moody’s upgrades our outlook to stable. PM Imran Khan & the economic team making the right moves & driving all naysayers insane. Pakistan on the rise,” the minister said.
Also taking to Twitter, Sindh Governor Imran Ismail acknowledged the improvement in Pakistan’s economy and termed the Moody’s report as an ‘achievement during the times of pandemic’.