It was almost as if Moody’s, the credit rating agency, was acting as an agent of the IMF, as it asked the government what would be the effect of the government missing the IMF’s tax-to-GDP ratio. It has been speculated that the IMF functions as a credit rating agency, with the difference that it makes recommendations for action, something which Moody’s and the other major crediting rating agency, Standard & Poor, do not make, except in the roundabout fashion of indications as to what actions would get a favourable rating. One of the main reasons why countries like Pakistan court the rating agencies is that the rating they award will determine how much interest is charged the country on the international money markets, and how easy it is to raise the loan. Being on an IMF programme helps, for it means the country is not going to default. The rating is an estimate of how well the country is supposed to be able to service its debt. Pakistan was downgraded by Moody’s to Caa3 from Caa1, which was not very good itself. It was upgraded to Caa2 last August, with ‘positive’ outlook. Pakistan is now trying to get a further upgrade, presumably to Caa1, which would bring it back to where it was in October 2024. In comparison, Standard & Poor gave a CCC rating in August last, and said that its outlook was stable.
Though Pakistan has claimed that it has achieved economic stability, that is only by the skin of its teeth. Even as Federal Finance Minister Muhammad Aurangzeb engaged with Moody’s virtually, PM’s Special Assistant for Industries and Production Haroon Akhtar Khan engaged with leaders of the business community to get them to call off the strike scheduled for July 19. That the Federation of Pakistan Chambers of Commerce and Industry agreed not to strike, but it only deferred it until the meeting of all its demands, they centre on the powers of taxmen to arrest alleged tax defaulters. In short the chambers are objecting to paying taxes, something which the IMF insists upon.
Mr Aurangzeb has long insisted on engaging with the rating agencies, but gave the impression that this was distinct from the engagement with the IMF> Rating agencies have every right to do due diligence, but there seems to be the danger of falling in the trap of doing the IMF’s for it.
