IMF disbursement credit positive: Moody’s
Moody’s Investors Service, a leading international credit rating agency, has said that successful completion of the International Monetary Fund’s (IMF) review of Pakistan reflects prospective improvement in the country’s institutions and governance strength.
In a statement on Friday, the rating agency pointed out that the IMF acknowledged greater credibility of Pakistan’s macroeconomic and fiscal management.“More orthodox monetary policy has complemented the country’s recent efforts to shore up fiscal finances,” it said.
Moody’s elaborated that the strengthening of central bank autonomy through the State Bank of Pakistan (SBP) Amendment Bill 2021 would add credibility to the SBP’s ability to target inflation and restrain direct financing of government debt.
Further traction on tax reforms will likely drive a gradual increase in revenue with a concomitant improvement in debt affordability, it predicted.
Nevertheless, the IMF also noted the need for further structural reforms, particularly in the energy and state-owned enterprise sectors, to foster a business environment conducive to investments and private sector development.
According to Moody’s, sustained progress in these areas will not only raise economic productivity and competitiveness but will also reduce contingent liability risks.
“We believe that Pakistan remains committed to advance other reforms under the IMF programme, likely unlocking further disbursements,” it said. “However, beyond the expiry of the programme in September 2022, the government’s ability to sustain the momentum of reforms, particularly those aimed at further broadening its revenue base or to commit to an immediate successor programme, is uncertain given elections are scheduled to take place by late 2023.”
The rating agency projected that the current account deficit of Pakistan would widen to 3-3.5% of GDP in fiscal year 2022. The IMF disbursement will partially offset the pressure on foreign exchange reserves, while facilitating further financing from other official sources, it added.
“Thereafter, we expect a moderation in global oil and commodity prices to contain growth in the import bill, while the ongoing global economic recovery will support exports and remittance inflows,” Moody’s said.
“As a result, we assume that the current account deficit will narrow down and stabilise at 2-3% of GDP in the subsequent two to three-year period.”
The successful disbursement is credit positive, shoring up Pakistan’s foreign exchange reserves, which have faced significant pressures in recent months amid a sharp widening in the current account deficit as higher global oil and commodity prices contributed to a yawning goods trade deficit.
Published in The Express Tribune, February 5th, 2022.
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