Despite the government’s cover-up of a controversial GDP growth rate for 2013-14, international credit rating agencies seem to be largely sold on Pakistan’s economy. Moody’s Investors Service revised the outlook on Pakistan’s foreign currency government bond rating to ‘stable’ from ‘negative’.
Moody’s decision to revise the outlook on Pakistan’s foreign currency rating is based on the “stabilisation in the country’s external liquidity position” supported by the government’s strong commitment to reforms under an on-going programme with the International Monetary Fund (IMF). The continued implementation of structural reforms under the programme will ensure additional tranche disbursements, buffering Pakistan’s foreign reserves, it said.
Foreign exchange reserves held by the State Bank of Pakistan (SBP) stood at $9,602 million on July 4 after increasing more than 50% in 2013-14.
A key factor behind Moody’s one-notch downgrade and outlook revision for Pakistan back in July 2012 was a deterioration in the external liquidity position due to a widening current-account deficit, large outflows from the financial account and a decline in international reserves to very low levels.
“This situation has reversed over the past year: the current-account deficit is modest, estimated at 1% of GDP for June 2014, while financial inflows have increased due to a $2 billion Eurobond sale earlier this year, privatisation proceeds, and multilateral and bilateral funding,” Moody’s said, adding that repayments to the IMF from the previously suspended programme are tapering off even as disbursements from the on-going programme continue.
Although Pakistan’s past record is weak with regard to previous programmes with the IMF, Moody’s says the country is making steady progress in meeting reform benchmarks under the current 36-month $6.8 billion Extended Fund Facility with the IMF. Noting that Pakistan has cleared three programme reviews and received $2.2 billion of financial assistance, it said the government has met 10 of 17 structural benchmarks, and “appears to be on track towards achieving the remainder”.
These goals include tax and energy sector reforms, as well as efforts to privatise state-owned enterprises. “Reform implementation may be challenging. Nonetheless, we think the authorities will persevere to achieve the overall intent of the package,” it said.
Warning of dangers that lie ahead, Moody’s said a stalling of the on-going IMF programme, deterioration in the external payments position, or a worsening political environment will be viewed as credit negative. In contrast, upward triggers to the rating stem from the successful completion of the IMF programme, further improvements in the external liquidity position, continued fiscal consolidation, and progress on structural reforms that will remove infrastructure impediments and supply-side bottlenecks. “Domestic political stability and steady relations with international donors would further support the rating,” it said.
Published in The Express Tribune, July 15th, 2014.
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A bad news for prophets of doom who kept forecasting the country's so called imminent crash for over a decade.
Moodys have given a positive rating to Modi's India as well. Congrats India and Pakistan. it is the regions which develops, not Individual countries. If India develops it would be beneficial to Pakistan, and vice versa.
I think 1 bln Aid money from KSA is the result of this improvement. The money is to attack NW.
"Further improvement will depend on domestic political stability" PTI needs to understand that destabilizing Pakistan is not in the interest of the country. They need to focus on governance in KP and wait for the next elections in 2018
The credit rating just shows a country's ability to pay back loans, that's all. In America, they have a credit rating score for even a person. Let say if you want to acquire a personal loan for yourself to purchase a car or a house, the banks first check your Credit Score, if your score is above 700 then you are considered in good standing. If it is below 600 then you have poor credit rating, and you may not get a loan for a car or a house. It is measured by a person's previous record of paying back loans, credit card bills, utility bills like electricity bills, gas bills, also how many loans you have, etc. So same thing with a Country, like Pakistan which unfortunately relies heavily on borrowed loans to function. If a government has been paying of loans on time, then Moody's and other Credit rating firms mostly based in US, will give you good ratings, so that you keep on borrowing more. It is to continue the cycle of debt, which you can never free yourself from.
Haters are going to hate, no matter what happens. Give credit where it is due. Federal government has improved financial position of Pakistan. If it is due to the external investment, then still it indicates economic stability. Reduction of current-account deficit is also a good sign. Hope that Pakistan will continue developing in future.
Surprised that given terrible economic conditions, Pakistan rating is on the up. Does the opposition have a better program? If so, please publicize.
It is really disturbing that even Moody's can not see what is happening on Economy of Pakistan ..... stability in price hike, inflation, borrowing local and international , seriously i can't understand the yard stick ......may be the masters of this fudge Govt. want to provide it a push with such a false news when Azadi March is coming to crush it......
What is pretty obvious is that liquidity position has only improved through extensive loans. And it is based on those and promises of "reforms" that the rating has notched up.
Good performance. Opposition must oust the govt now as improving performance of the govt will make it impossible later.
Pakistan is our indias' immediate neighbour . So good that it is developing . Pakistan has all the potential to become a super power considering its huge young population & Geographically uneven distribution of poplulation . Hence it cam improvise its trade measures .If concentrating more on your basic infrastructure surely u can prosper than on your miltary ; surely u will suceed .
I am sure its not only Ishaq Dar, Moody too believes in 'TYPO'S'!
Moodys and other rating agency are so full of that smelly matter ... They kept greece and italy in good ratings till the crisis was revealed. They remind me of arthr andrsn and enron.
ET, you know we get negative out of a positive news. We are not used to good news. Don't tell us if anything says good thing about our country (sarcasm!)