Political developments will not affect rating

flare-up in political turmoil won’t have an immediate impact on the nation’s credit ratings.

SINGAPORE: The flare-up in political turmoil, following the assassination of Punjab Governor Salman Taseer, won’t have an immediate impact on the nation’s credit ratings, Moody’s Investors Service said on Wednesday.

However, it warned that prolonged political instability and economic stagnation could lead to a banking crisis in the country. “The prolonged stagnation of economic growth and high political risk will be large risks for Pakistan over the next 12 to 18 months,” said Aninda Mitra, Vice President and senior analyst at Moody’s Sovereign Risk Group.

If economic stagnation and political instability continue, “it could either cause a sovereign debt restructuring or a banking crisis in Pakistan,” Mitra told Dow Jones Newswires in a telephonic interview.

“The staying power (of the government) for implementing tough economic reforms is currently under pressure,” Mitra said. The assassination was “symptomatic of high political risk” but would not impact the country’s sovereign credit ratings just yet.

“These kinds of events are already factored into our B3 rating. The event itself comes as a shock to the political system but by itself, it does not raise the risk (of a downgrade),” he added. Pakistan, plagued with budget deficit approaching six per cent of gross domestic product compared with 4.7 per cent budgeted this year, has been dependent on foreign financial aid to keep its economy afloat. International Monetary Fund provided $7.4 billion in assistance under a $11.3 billion emergency loan package set in 2008.

Attached to the IMF programme are conditions requiring the government to carry out reforms that include changes to the tax structure and step up economic growth. But the country’s failure to tackle its budget deficit by taking steps to boost revenue and slash spending has frustrated IMF and other foreign donors.

Published in The Express Tribune, January 6^th, 2011.