Petrol crisis weighing on credit worthiness: Moody's

Published: January 26, 2015


ISLAMABAD: The ongoing fuel shortage that has led to worsening power blackouts is weighing on its credit worthiness and hindering its ability to meet key reform targets laid out by the IMF, ratings agency Moody’s warned Monday.

The country is currently in the grip of one of its worst power crises in years due to a shortfall in imported oil, with the situation exacerbated on Sunday by an attack on a key powerline in Balochistan.

RELATED POST: Power breakdown: Nationwide blackout

Moody’s said that increasing energy imports without addressing structural issues that create so-called circular debt “will further strain Pakistan’s budget and balance of payments, a credit negative”.

“Fuel shortages also reflect the strained finances of state-owned distribution companies and the fuel importer, Pakistan State Oil corporation, and are a setback to the sector’s progress on reforms made so far under Pakistan’s financial support program with the International Monetary Fund.”

The IMF granted a $6.6 billion loan to Pakistan in September 2013 on the condition that it carry out extensive economic reforms, particularly in the energy and taxation sectors.

Moody’s, which in July 2014 upgraded Pakistan’s rating outlook from “negative” to “stable” in a boon for the shaky South Asian economy, said that structural reforms had been a “key driver” in its decision last year.

“Circular debt” — brought on by the dual effect of the government setting low electricity prices and customers failing to pay — is at the heart of the crisis.

State utilities lose money, and cannot pay private power generating companies, which in turn cannot pay the oil and gas suppliers, who cut off the supply.

The fuel crisis began last week when Pakistan State Oil was forced to slash imports because banks refused to extend any more credit to the government-owned company, which supplies 80 per cent of the country’s oil.

The shortfall led to long queues of angry motorists at petrol stations, though these have since dissipated as fuel supplies have reached the pumps.

But Moody’s warned that the government of Prime Minister Nawaz Sharif, which made solving the energy crisis a key campaign pledge, had so far failed to offer policy solutions and increasing oil supplies would only add to the fiscal burden.

“The government’s targeted fiscal deficit of 4.5 per cent of GDP in fiscal 2015 from 4.7 per cent in fiscal 2014 is already impeded by delays in implementing electricity tariff adjustments and legal challenges related to tax collections,” it said.

Increasing fuel imports, which currently comprise 35 per cent of total imports would further weigh on Pakistan’s import bill, it added.

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Reader Comments (14)

  • rishi
    Jan 26, 2015 - 3:25PM

    Modi is good at governance, need any help from him?


  • Asad
    Jan 26, 2015 - 4:14PM

    Sure if he can call Nawaz in india and host him for atleast 10 yrs alongwith family.


  • Karachi 3
    Jan 26, 2015 - 4:17PM

    What about the debt of over Rs 160 Billion of unpaid refunds that FBR has created?


  • Safi
    Jan 26, 2015 - 5:37PM

    Pathetic indians this is not modi! Its moody you illiterate indians ! Its a rating company! No one gives damn about your pathetic modi! #frustatedindians


  • Waqar
    Jan 26, 2015 - 8:33PM

    Yes and this rating company has rated you as “junk” category and illiterate india as “investment” category- check its ratings country wise- since u r literate surely u can understand the diff


  • Waqar
    Jan 26, 2015 - 8:35PM

    Seriously it was a gud one- take a bow


  • Rahul
    Jan 26, 2015 - 9:31PM


    No Indian has yet commented that Modi has anyone to do with this. Someone else is frustrated it seems.


  • woodt
    Jan 26, 2015 - 9:42PM

    “Circular debt” — brought on by the dual effect of the government setting low electricity prices and customers failing to pay — is at the heart of the crisis.
    Worth repeating. The core issue is a system which tolerates and might even encourage dead beats – and that includes govt owned enterprises. In the rest of the World dead beats are cut off from services and then required to pay in advance if they want future service – works every time.


  • Rafi Ka Deewana
    Jan 27, 2015 - 3:59AM

    Not a Pakistani fan for what it is doing to India and the rest of the world, but I have started to feel sad given what it is going through.

    There seems to be no positive news ever that can give hope to the citizens. Maybe, the world cup when they (possibly) beat India. But that will just be ego satisfying, and won’t provide peace or electricity.

    Then every reader of this forum knows how to solve the problem – its that simple. Whom do we blame for not implementing it?


  • Dishum
    Jan 27, 2015 - 4:00AM

    @Safi: Very Moody today. Everything OK?


  • S Hashmi
    Jan 27, 2015 - 4:25AM

    Hold your horses brother. This is a Pakistani news site. If Indians visit our page and comment here then they are our guests. I’m sure a vast majority of Pakistanis welcome their comments. If you do not agree with anything then there is a better way to disagree.


  • Daffy
    Jan 27, 2015 - 7:09AM

    Solution: Convert all “circular” debt to rectangular debt. Build more nukes.


  • Indi
    Jan 27, 2015 - 8:22AM

    @Safi: From your angry diatribe it is apparent who is more frustrated. Did you fill up enough petrol today?


  • lmao
    Jan 27, 2015 - 9:34AM

    what does Moody’s know???!!! the petrol crisis was on account of huge demand arising from massive development. Ask any cabinet minister. This is nothing but a conspiracy by Moody and Modi.


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