Negative rating

The global credit ratings agency Fitch downgraded Pakistan’s long-term foreign currency issuer default rating from a B to B- on Friday, bringing the country perilously close to junk territory and making it more expensive for us to get loans from international institutions in the future. That Fitch did this despite taking into account the emergency loans Pakistan has received from Saudi Arabia and promises of assistance from China shows just how cash-strapped we are. Fitch has said that Pakistan’s foreign currency reserves of $7.3 billion are only sufficient to meet a month-and-a-half of our import needs but has noted note that the outlook could improve with continued depreciation of the rupee and a strengthening of our exports.

The downgrading of our rating is primarily an indictment of the previous PML-N government’s performance. For instance, the previous government was so desperate to raise money that it issued the $1 billion Eurobond in 2014 that offered a massive profit rate of 6.875 percent in the expectation that we would increase our exports so much through CPEC projects that it would still be worthwhile for us. That did not prove the case and the first repayment is due in April next year, furthering weakening the country’s reserves.

An additional burden is the fact that repayments for loans taken from China are due starting from next year. Here too the previous government is to be faulted as is was overly optimistic about how much growth in exports would be spurred by CPEC. But the current government deserves its share of the blame too. It has given mixed messages about the state of the economy, variously claiming that it would and wouldn’t approach the IMF before succumbing to the inevitable. It has shown no plan for tackling this crisis beyond bringing out the begging bowl once again. Its austerity programme is mostly symbolic and would barely make a dent in the budget deficit. Pakistan’s economic problems are mostly structural. We are too reliant on imported oil and have a weak export base. There is no miracle solution, and if we are to recover from this crisis it will take years of sensible policy. This government has not shown it has the aptitude for that. It, like its predecessor, seems to prefer wishful thinking and unrealistic promises over the hard work of recovery.