ISLAMABAD – Moody’s, a ratings agency, said Pakistan’s ongoing fuel shortage that has led to worsening power blackouts is weighing on its credit worthiness and hindering its ability to meet key reform targets laid out by the International Monetary Fund.
Moody’s said, “The government’s targeted fiscal deficit of 4.5 per cent of GDP in fiscal 2015 from 4.7 per cent in fiscal 2014 is already impeded by delays in implementing electricity tariff adjustments and legal challenges related to tax collections.” The IMF granted a $6.6 billion loan to Pakistan in September 2013 on the condition that it carries out extensive economic reforms, particularly in the energy and taxation sectors.
Pakistan is currently in the grip of one of its worst power crises in years due to a shortfall in imported oil, with the situation exacerbated yesterday by an attack on a key powerline in Balochistan province.
It said that increasing energy imports without addressing structural issues that create so-called circular debt “will further strain Pakistan’s budget and balance of payments, a credit negative”.
Moody’s, which in July 2014 upgraded Pakistan’s rating outlook from “negative” to “stable” in a boon for the shaky South Asian economy, said that structural reforms had been a “key driver” in its decision last year.
“Circular debt” — brought on by the dual effect of the government setting low electricity prices and customers failing to pay — is at the heart of the crisis. State utilities lose money, and cannot pay private power generating companies, which in turn cannot pay the oil and gas suppliers, who cut off the supply.
