Moody’s has released the revised rating for Pakistan in which it has downgraded the sovereign credit rating from B3 to Caa1. The rating action by Moody’s is strongly contested by the Ministry of Finance as the rating action by Moody’s was carried out unilaterally without prior consultations and meetings with our teams from the Ministry of Finance and State Bank of Pakistan. Following Moody’s intimation of the rating action, Ministry of Finance held two meetings with the Moody’s team over the past 24 hours, sharing data and information which clearly show a picture contradicting Moody’s rating action.
After a regular stock take of the economic and fiscal conditions, Ministry of Finance seeks to inform that government policies over the last few months have helped in fiscal consolidation. Government of Pakistan has adequate liquidity and financing arrangements to meet its external liabilities. Pakistan is currently under the IMF Programme, the continuity of which is based on the confirmation and confidence in country’s ability to maintain the fiscal discipline, debt sustainability and its ability to discharge all its domestic and external liabilities. The country remains committed to the agreements reached under IMF prorgamme.
Moody’s “worsening near- and medium-term economic outlook” does not depict the correct picture due to gaps in information available with Moody’s and its use of estimations is not grounded in fundamentals. As such, the estimate of economic cost of the floods at US$ 30 billion is premature as the data is still being compiled in collaboration with World Bank and other partners, to ensure transparency and accuracy, and will be available once the figures are firmed up. Thus, the impact on GDP growth rate cannot be fully and accurately assessed at this time and so Moody’s downward revision of GDP growth rate at 0-1% has no solid basis. Similarly, translating economic losses into fiscal deficit is contested. On the expenditure front, government will largely be involved in public infrastructure rebuilding, and that too, over a number of years. The uptick in urgent current expenditure is being met through re-allocations and re-appropriations of budgeted funds thus mitigating the risk of rising deficit. On the revenue front, the increase in nominal GDP is likely to compensate for any dip in revenues.
During recent meetings with multilaterals, the government has received additional funding commitments from ADB of over US$ 2.5 billion. Similarly, World Bank has also pledged additional funding of around US$ 1.3 billion for infrastructure and other projects in the current financial year. These are in addition to Ministry’s financing plan at the start of the financial year.
On the appeal of UN Secretary General, funds to the tune of US$ 816 million were pledged by countries in a conference in Geneva on October 04, 2022. We expect further fundings from multilaterals and friendly countries in the donor conference planned to be held in Pakistan in November this year. Consequently, we expect the external sector to improve further in line with the increase in liquidity.
The impression of restructuring of Pakistan’s debt is refuted unequivocally as currently no such proposal is under consideration or is being pursued as has been categorically stated by the Finance Minister.
Some of the key numbers can further help understand performance of the economy in the post-flood scenario:
On revenues, it may be noted that FBR taxes grew by about 28% in September FY23.
Similarly, the recent post-flood performance numbers of various sectors of the economy including agriculture and livestock show that its impact on current account deficit is likely to be moderate compared to that assumed by Moody’s. Commodity prices, especially crude oil, have eased compared to a month ago, this would help in offsetting some of the impact of floods on the current account deficit. The downward trend of the deficit during the past months of FY23 has already been widely reported.
The overall situation of the country, especially in the post-flood scenario, needs to be seen in the context of the steps taken by the government for relief and recovery and the assistance and commitments by the global community, including multilaterals and bilateral, to help in the rehabilitation and reconstruction phase. Ministry of Finance strongly feels that the downgrading of Pakistan’s rating is not truly reflective of Pakistan’s macroeconomic conditions.
Source: Government Of Pakistan Ministry Of Finance