In a latest financial report, Moody’s Investors Service – international credit rating agency – has given Pakistan B3 Credit rating. The problem however remains with the debt which is estimated at $79 billion – 7% higher from State Bank of Pakistan’s forecast.
A direct excerpt from the report reads:
“Strong growth performance, fiscal deficit reduction, & improved inflation dynamics underpin Government of Pakistan’s B3 rating with a stable outlook”.
Credit Challenges Faced by Pakistan
Credit challenges include a relatively high general government debt burden, weak physical and social infrastructure, a fragile external payments position, and high political risk. The major factor being the government’s very narrow revenue base weighs on debt affordability. Meanwhile, exports and remittance inflows have slowed and capital goods imports have risen, resulting in renewed pressure on the external account.
By the end of fiscal year 2016-17, Pakistan’s external debt is being estimated to increase to $79 billion. The debt breakup shows that the public sector component will be $77.7 billion. This forecast for the outgoing fiscal year is much higher than State Bank of Pakistan which was released earlier this year.
The central bank had shown total external debt and liabilities at $74.2 billion by end of fiscal year 2016. This maintained $64.5 billion as the external debt component.
If the debt grows to $79 billion according to Moody’s predictions, it means an additional $14.6 billion in debt has been added in the past four years alone. The government is already facing severe criticism of its debt financing policies resulting by lower exports and little foreign direct investment.
CPEC Continues to Remain Economic Bright Spot
Moody’s claim that the implementation of the CPEC project has the potential to transform the Pakistani economy by relieving infrastructure bottlenecks, and stimulating both foreign and domestic investment. This however, comes at a cost of the finance management involved in the process. The debt financing and political instability can influence Pakistan’s current economic stability within no time.
William Foster, a Vice President and Senior Credit Officer at Moody’s, voiced his opinion:
“Since 2013, implementation of economic reforms and increased foreign investment flows has contributed to macroeconomic stability and higher GDP growth. However, government debt remains elevated and pressure on the external account continues.”