Positive ratings

Pakistan’s economy seems to have stabilised in the eyes of the international community. This past Saturday, the IMF once again lauded Pakistan’s economic reforms programme and claimed the country was set for higher and more inclusive growth. The IMF statement followed the decision of global rating agency Standard and Poor’s (S&P) to raise the rating for Pakistan’s long-term sovereign debt to B from B-. The S&P rating had come after IMF Managing Director Christine Lagarde praised Pakistan’s newfound macroeconomic stability. S&P has said that Pakistan long-term economic outlook is stable after an improved economic performance. However, it insisted that Pakistan’s economy continued to exhibit structural weaknesses, such as a narrow tax base and internal and external security risks. This means that, while Pakistan’s fiscal and external buffers have improved, they remain underpinned by major structural weaknesses. The credit rating agency has made a number of positive readjustments to its predictions for Pakistan’s economy. Pakistan’s GDP per capita is expected to hit $1,500 by the end of this year. The growth rate will rise to five percent for 2016-2019. The agency also feels Pakistan’s government debt will fall below 60 percent by 2018. It may even improve Pakistan’s credit rating further if security improves.

If all of these predictions are met, there is certainly scope for believing that a slow but steady economic recovery is on its way in Pakistan. Global credit rating agencies are increasingly positive that the current democratic setup has led the country out of the economic doldrums. Big words such as macroeconomic stability, reduced fiscal vulnerabilities and growth-supporting reforms, have been used to describe the country’s economic situation. The same enthusiasm is rarely found domestically. Key areas such as exports and foreign direct investment (FDI) show no indication of improving drastically despite the promise of Chinese investment in the CPEC. Low oil cost could be the simplest of explanations for why Pakistan’s fiscal health seems to be much better. The country also remains heavily dependent on remittances for its foreign exchange reserves. S&P is also concerned over the real appreciation of the international exchange rate for the Pakistani rupee, which is said to be a major risk if Pakistan wants to genuinely improve exports. Overall, the news is positive. Operating in a difficult climate, the current government has managed to improve the international perception of Pakistan’s economy. It will need to do more to continue to upward trajectory.