A report issued by the Standard and Poor, a US–based financial services company, has affirmed B- long-term and B short-term sovereign credit ratings on Pakistan with a ‘stable outlook’, but warns that internal and external challenges still exist for the credit rating of the country.The report says that there is a need to introduce reforms for the improvement of economy. The credit rating is concerned with security issues, weak institutional policies, foreign remittances, decreased per capita income, heavy government loans, poor performance ofthe financial sector and inflexibility in the monetary policies.The government will have to take steps to improve all these sectors. Pakistan faces internal and external threats to its security as operation against extremists continues in the tribal areas, but threats from Taliban have not yet ended. There is question on the stability of Afghanistan after withdrawal of the US and allied forces. However, the government of Prime Minister Nawaz Sharif is stable despite the fact that a campaign has been launched against him for the last many months.
The government is trying to tap international investors by introducing‘sukuk’plan whereas $500 million Islamic notes may also help cut borrowing costs. The International Monetary Fund has also released the installment of$1.1 billion in a $6.67 billion bailout loan owing to the government’s reform efforts.
As pointed out by the credit agency,there is a need to deal with security challenges, introduce structural reforms and take steps to improve business environment in Pakistan. The agency has warned that it could lower the rating if inflow of multilateral funding is delayed or the government goes slow on its reforms efforts. In this situation, Pakistan’s external liquidity risk will be exacerbated and fiscal profile will be dampened. However, the rating agency also points out positive signs such as stable political landscape and increased foreign exchange reserves.
The agency expects that available foreign exchange reserves should cover about two months current account payments until June 2015 while gross external financing needs should decline slowly to 107 percent of the current account receipts plus usable reserve at the end of fiscal 2015 from 113 percent a year ago. The ratio could improve further, should import prices of oil continue to decline.
The country needs political stability and business friendly environment otherwise all the government steps to further squeeze the genuine taxpayers will not only curtail revenues, but will also slow down business activities.
