Moody's lifts Pak's out­look to sta­ble from neg­a­tive

Daily Messenger - - Front Page -

Int’l rat­ing agency ex­pects CAD to con­tinue nar­row­ing in cur­rent and next fis­cal year; Re­port fore­sees Pak­istan’s GDP growth to slow to 2.9 per cent in FY2020 from 3.3per cent in last year; States po­lit­i­cal risks re­main ma­te­rial de­spite govt’s work­ing re­la­tion­ship with mil­i­tary and ju­di­ciary

ISLAMABAD: As a sign of im­prov­ing econ­omy, Moody’s In­vestors Ser­vices have up­graded the coun­try’s out­look from ‘neg­a­tive’ to ‘sta­ble’, reaf­firm­ing the coun­try’s rat­ing of B3, the agency an­nounced on Mon­day.

Moody’s had down­graded Pak­istan’s ratings out­look to neg­a­tive last year in June, cit­ing height­ened ex­ter­nal vul­ner­a­bil­ity risk due to de­plet­ing for­eign exchange re­serves.

Al­though Moody’s over­all state­ment in­di­cates that Pak­istan is much on track of In­ter­na­tional Mon­e­tary Fund’s (IMF) guide­lines, the rat­ing agency also high­lighted the risks iden­ti­fied by IMF and the Financial Ac­tion Task Force (FATF).

The agency said that while the fis­cal strength has weak­ened with higher debt lev­els largely as a re­sult of cur­rency de­pre­ci­a­tion, on­go­ing fis­cal re­forms, an­chored by the IMF pro­gramme, will mit­i­gate risks re­lated to debt sus­tain­abil­ity and gov­ern­ment liq­uid­ity. The re­forms would also mit­i­gate debt sus­tain­abil­ity and gov­ern­ment liq­uid­ity risks.

While ap­pre­ci­at­ing the steps taken for widen­ing the tax net, the agency claimed that the sup­port from IMF and World Bank will raise ef­fec­tive­ness of the rev­enue mea­sures. How­ever, Moody’s es­ti­mates that the rev­enue growth tar­gets set by the IMF pro­gramme are challengin­g to achieve in full in a sub­dued eco­nomic growth en­vi­ron­ment. In par­tic­u­lar, Moody’s ex­pects Pak­istan’s GDP growth to slow to 2.9 per cent in FY2020 from 3.3 per cent last fis­cal year, given tight financial con­di­tions that con­tinue to weigh on do­mes­tic de­mand, be­fore ris­ing to 3.5 per cent in FY2021.

As per Moody’s, the IMF pro­gramme, which com­menced in July 2019, tar­gets higher for­eign exchange re­serve lev­els and has un­locked sig­nif­i­cant ex­ter­nal funding from mul­ti­lat­eral part­ners in­clud­ing Asian Devel­op­ment Bank (ADB) and World Bank. Nev­er­the­less, un­less the gov­ern­ment can ef­fec­tively mo­bilise pri­vate sec­tor re­sources, for­eign exchange re­serves are un­likely to in­crease sub­stan­tially from cur­rent lev­els.

Re­gard­ing debt, the agency ex­pects, gov­ern­ment’s pub­lic debt to slowly de­cline over the next few years to around 75-76 per cent of GDP by 2023, which is still a high debt bur­den, from a peak of around 82-83 per cent of GDP cur­rently. In ad­di­tion to the grad­ual de­cline in the debt bur­den, the gov­ern­ment has al­ready re­pro­filed a sub­stan­tial por­tion of do­mes­tic debt from short-term trea­sury bills into longer-term float­ing rate bonds. This will re­duce gross bor­row­ing re­quire­ments to around 25 per cent of GDP in FY2020, from nearly 40 per cent in the last fis­cal year. The gov­ern­ment is aim­ing to lengthen do­mes­tic ma­tu­ri­ties fur­ther and re­duce its re­liance on trea­sury bills and float­ing rate debt. Moody’s ex­pects that banks and other do­mes­tic in­sti­tu­tional in­vestors will re­tain a strong ap­petite for gov­ern­ment se­cu­ri­ties. Lower gross bor­row­ing re­quire­ments and ex­po­sure to float­ing rate li­a­bil­i­ties sus­tained over time will re­duce the gov­ern­ment’s ex­po­sure to liq­uid­ity and in­ter­est rate risks that are cur­rently very high.

It ex­pects that the com­ple­tion of power projects will re­duce cap­i­tal goods im­ports, while oil im­ports will re­main struc­turally lower given the slow tran­si­tion in power generation away from diesel to coal, nat­u­ral gas and hy­dropower. Tight mon­e­tary con­di­tions and im­port tar­iffs on nonessen­tial goods will also im­pact broader im­port de­mand for some time, al­though Moody’s sees the pos­si­bil­ity of mon­e­tary con­di­tions easing when in­fla­tion grad­u­ally de­clines to­wards the end of the cur­rent fis­cal year.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.