S&P hints at upgrading Pakistan’s credit rating

Will monitor upcoming elections; pending economic reforms, IMF loan are key determinants

KARACHI:

S&P Global Ratings has hinted at upgrading Pakistan’s credit rating to ‘B’ following the new political government that comes into power post-Thursday (February 8) elections in the country, but the change in the rating would largely depend on the economic roadmap of the new rulers.

To upgrade the rating, the global rating agency will closely watch the new government’s moves towards securing the next International Monetary Fund loan programme after the ongoing one, worth $3 billion, is completed in March 2024. The new programme will ensure the government continues to repay the maturing foreign debt on time.

According to the global media outlet Bloomberg, S&P sees a path for Pakistan’s upgrade to ‘B’ after the election results. Pakistan is currently rated ‘CCC+’ by the agency. The credit rating ‘B’ suggests the nation has the capacity to repay the foreign debt on time but still faces a degree of uncertainty that could lead to missing the repayment obligation later on.

Citing S&P, the media outlet reported, “Pakistan’s road to securing higher credit ratings will depend on whether the elections this week will bring about a government that can push for tough reforms.” A government with popular support and the ability to work with key institutions will have a better chance of securing financing from the IMF, S&P Analysts including Kim Eng Tan wrote in a February 4 report. “Together with new policy moves to improve investor confidence and bring down inflation, this could lift fiscal and external metrics sufficiently for the sovereign ratings to move to the ‘B’ rating category,” S&P said.

The IMF's short-term nine-month programme is set to end in March 2024. This will also be the time when the new government will have come into power and announced its economic roadmap.

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Pakistan was to repay a total of $24.2 billion in foreign debt and in interest payment on the debt by the end of June 2024. High officials claim the government has the full arrangement for the debt obligation under the ongoing IMF loan programme. According to the State Bank of Pakistan latest updates announced a week ago, the country is to repay only $5 billion in the last five months (Feb-Jun) of the current fiscal year 2023-24.

It has repaid $6.2 billion in the first seven months of FY24 and rolled over another $12 billion, settling almost all the debt for the year. Pakistan’s business community has identified two major challenges for the upcoming government including securing a new loan programme from the IMF and re-profiling foreign debt obligations. Government action on both points will give direction to the domestic economy, as repaying the debt on time is a must to achieve growth from the domestic economy which is showing early signs of stability at present.

The business community said the next government should focus on boosting export earnings and increasing inflows of remittances, as these remain the key to long-lasting economic growth. The stability in currency is a must to achieve a jump in exports and remittances. The next government should also work to control inflation reading to pave the way for the central bank to cut the interest rate, which has been hovering at a record high 22% since June 2023. A rate cut is a must to allow businesses to perform. No one could make new investments at the prevailing high interest rate, they said. At the same time, the new government should work to minimise energy prices to make industries competitive at the local as well as the international levels. Pakistan has lagged behind in attracting foreign investment. To attract investment, the nation requires a strong government, strong business planning, and its implementation in letter and spirit, consistency in policies, political stability, and a stable currency, they said.

Published in The Express Tribune, February 7^th, 2024.

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