That Pakistan’s creditworthiness is not very promising goes without saying. Almost all top rating agencies have downgraded the country’s ratings based on the persistent political and economic crisis. According to a latest assessment, by S&P Global Ratings, Pakistan securing high credit ratings will depend on whether the government to be formed in the wake of the February 8 elections can push for tough reforms to ensure macroeconomic stability and growth. The S&P has lowered the country’s long-term credit rating to ‘CCC+’ from ‘B-’ and short-term rating to ‘C’ from ‘B’, signifying its vulnerability to a default on its foreign financial obligations.
Pakistan, whose economy is worth around $350 billion, faces a serious debt repayment crisis. The country is obligated to repay $77 billion over the next three years. More than 30% of this amount, or $24 billion, has to be paid back by the end of the ongoing fiscal year while the foreign currency reserves held by the State Bank of Pakistan total around $6 billion. This paints a worrisome scenario and clearly shows that the incoming government will have to seek another IMF programme which would be the 24th time for the country to go to the lender of last resort. This is what pitches the incumbents-to-come against the unpopular task of carrying out structural reforms, including: widening the tax net through higher taxes on agriculture, property and retailers; doing away with subsidies; reducing pension bill; privatising the loss-making state owned enterprises; improving the financial viability of the energy sector; and strengthening public debt management through better institutions and systems.
As part of the debt repayment strategy, the economic czars pin all their hopes on the Special Investment Facilitation Council (SIFC), targeting $100 billion in investment inflows — in various sectors, viz agriculture, energy, IT, mining, etc — from friendly Arab countries over the next three to five years. But in order for the ambitious SIFC initiative to deliver, there is need to address the ongoing political instability as well as other challenges facing the investors, such as bureaucratic hurdles and inefficiencies; ever-changing economic policies; unfavourable business environment, etc.
The economic road ahead therefore does not offer an easy ride. The situation warrants a government with popular support to carry out reforms and go on to secure another bailout package from the IMF, apart from getting the $1.2 billion tranche of the ongoing programme released. So, much hinges on the outcome of the 2024 General Elections.
Published in The Express Tribune, February 9th, 2024.
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