Tuesday, September 15, 2009

Pakistan Gets Higher Credit Ratings

International credit rating agencies Moody's and Standard and Poor have both raised Pakistan's credit rating and outlook, according to Bloomberg News.

S&P increased its rating on Pakistan’s long-term sovereign debt to B- from CCC+, six levels below investment grade and the same ranking as the Ukraine and Argentina. The outlook was maintained as stable.

“The upgrade reflects Pakistan’s improved external liquidity position, coupled with its successes in implementing corrective policy measures to rectify an unsustainable fiscal trajectory,” S&P said in a statement. “A narrowing current account deficit, helped by buoyant remittance inflows, and successive disbursals of the IMF and other multilateral loans have reduced the risk of near-term external payment difficulties for Pakistan,” S&P added.

Moody’s rates Pakistan’s foreign debt at B3, six levels below investment grade and the same ranking as Argentina and Bolivia. The country’s local-currency bonds are rated by Moody’s at the same level. India's credit ratings (BBB-/Negative/A-3) are higher than Pakistan's but the ratings may be lowered because of concerns about its rising fiscal deficit of 6.8% of GDP announced in the 2009-10 Budget.

After losing 41% of its value in fiscal 2008-09, the KSE-100 has begun to rebound. The investors returning to the Karachi stocks have pushed the KSE-100 up 43% so far this calender year, up from 6295 points at the end of 2008 to 9030 level yesterday. While it pales in comparison with Mumbai's stock gains of 63%, the KSE's 43% gain is close to the MSCI emerging market index performance of 48% for 2009 so far.

During 2008, Pakistan's foreign currency reserves rapidly declined, economic growth stalled, and the ability to borrow additional cash was impaired when the nation's credit rating was cut by the rating agencies. S&P cut Pakistan's sovereign debt rating from B+, four notches below investment grade, as did Moody's from B1 with a negative outlook, for the first time in nine years, citing "growing economic imbalances and renewed political difficulties."

The signs of an economic rebound in Pakistan are visible today, bringing new investors and businesses to Pakistan. A lot now depends on whether the PPP government lets Mr. Shaukat Tareen, the current finance minister and former Prime Minister Shaukat Aziz's protege, guide the economy forward without undue political interference potentially detrimental to the recovery effort.

Related Links:

Pakistani Economy Poised For Rebound

International Investment Outlook For Pakistan

Signs of Economic Rebound in Pakistan

Shaukat Aziz's Economic Legacy

S&P Cuts Pakistan's Rating


Mudassar Jehangir said...

I don't think Shaukat Tareen is all independent for taking his decisions, he was about to resign at the time Rental Power Project's decision. He is still talking against those projects and terming them immature projects.

Riaz Haq said...

I think Shaukat Tareen's support comes from the international financial institutions and donor nations, not from the PPP bunch.

But the ruling feudals know they have no credibility with the world on their own, and they need Tareen to continue to get the aid they need.

If they p--- him off and he leaves, they are going to be in deep trouble.

Mudassar Jehangir said...

Yep you are right Mr. Riaz. What do you say about this??

Riaz Haq said...

Unfortunately, I have to agree with your assessment of our current leadership. I wish that wasn't the case. But who is to blame for this?
Didn't Pakistanis vote for these kleptocrats?

Riaz Haq said...

Here's an IMF official talking to Business Recorder about Pakistan's economy growing 5-8% in future years:

ISLAMABAD (February 25 2010): The biggest challenge Pakistan facing now is to improve growth rate to over 5 percent on sustained basis by overcoming structural challenges, says an IMF official. "There is no reason Pakistan can not grow over five percent on sustained basis by increasing exports and investments; all opportunities are there", said Masood Ahmed, IMF Director of Middle Eastern and Central Asian Division, in an exclusive interview with Business Recorder.

"To do so, Pakistan has to address impediments of increasing investment and to provide infrastructure, educated and skilled human capital, improve business environment, and level of governance", he said. "But in three to five years Pakistan, strongly growing on the structural reforms path, can also catch a growth rate of 8 percent, equal to its Asian rivals. That is also an average growth rate of Asia next year," he added.

Masood called for national consensus among all political parties on structural reforms so that in future these reforms should stay on course, and growth pattern should not be that much disturbed, and the government should show more political will in implementing these reforms. "Pakistan needs tough political decision to take on reforming its commercial entities, cutting its losses", Masood said.

Good macroeconomic practices to ensure strong pubic finances and competitive exchange rate to bolster high growth are also essential, he added. Pakistan grew 2 percent last year; has estimated to grow at 3 percent this year; and the Fund forecast to get to 4 percent next year. Unlike previous years' growth, based on consumption, future growth should be based on exports and investments.

In a scenario of growing global growth at 4 percent from negative 1 percent last year, exports demand would grow and competitive price advantage would support local exporters, making up for modest growth this year. "But, this is not enough, and Pakistan can achieve 8 percent of growth in coming years if structural reforms are really undertaken," the IMF Director said.

Pakistan government can save up to 8.5 percent of GDP to deploy from increasing tax revenue, and reduce losses of public sector inefficient enterprises. "Resources that are currently wasted in the loss, making public enterprises and taxes that are collecting taxes that are not collected, making public spending more efficient are estimated by Finance Ministry is over 8 percent of GDP which are almost $12 billion", says Masood, quoting Finance Ministry reports.

These resources could be deployed to finance the much-needed infrastructure, reliable electricity provision, better health and education for millions of Pakistanis, he added. Among other challenges, international oil prices can augment again next year posing balance of payments problems and inflation which had once come down to 9 percent. He said the government should also be reducing fiscal deficit, which is around 5 percent this year, that would crowed out private sector borrowing from banking sector.

"Inflation, once reduced to around 9 percent, is now again increasing, and rebounding at 13 percent, which is very harmful for the poor segment of the society. This is the biggest help for the poor class; this also helps increase investment, that ultimately helps reducing poverty," Masood said. He said help from donors, like Tokyo pledges, are slow, and IMF urges the donors to come up and support Pakistan, he added.