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January 9, 2019

Down to the numbers


January 9, 2019

After one of the world’s top three rating agencies, Fitch Solutions, downgraded Pakistan’s credit rating from B to B negative in early December last year, it has released a more detailed assessment of the current state of Pakistan’s economy. The credit agency pointed to the need for the new government to deliver ‘tangible economic improvement’ if it wishes to remain popular. The assessment of the PTI’s first months in power does not look positive, with the agency warning that the government would struggle to ‘recover momentum’ after a tough introduction to the trials of running the state. The PTI’s honeymoon period has been uninterrupted by major political unrest. The Fitch report, however, is not hopeful that this status quo will remain. The agency has also expressed concern over Pakistan’s deteriorating foreign relations with the West and the growing influence of religious hardliners, who have already once brought the country to a standstill in this government’s tenure.

The numbers given by Fitch don’t look good, with the agency predicting only 4.4 percent growth and a budget deficit that will increase to 6 percent. It is also not hopeful about Pakistan’s ability to beat its growing current account deficit, amidst a slowdown in global trade. Fitch has pointed to Pakistan’s trade deficit hovering around the same record numbers as last year to back its claim. The PTI government does not agree with these sombre numbers, though. Only this week, the planning ministry claimed that Pakistan is set to hit a growth rate of 5.6 percent this year. However, the question of whether current policies can deliver is being asked with more and more scepticism. And the fear is that the worst part of the economic crisis has not even hit the public yet. Fitch cites the four-year high inflation rate as a key example for the kind of economic suffering likely after the depreciation of the Pakistani rupee. More worryingly, the agency notes that investor confidence has declined recently due to exchange-rate volatility, high interest rates and ad-hoc mini-budgets.

This reads like an indictment of the current policies as well as of those that the IMF is advocating for in Pakistan. While the report arguably unnecessarily sees the government as less stable that it is, it has questioned the direction of economic reform that is taking place under the current government. The report has also raised questions about the ongoing anti-corruption sages in the country. The real issue is whether the PTI will ever be able to recover from backtracking on campaign promises, such as the one about never going to the IMF or spreading the begging bowl to other countries. The biggest warning from the credit agency is that momentum has been lost already. It is now up to the government to show it has a plan that extends beyond an underwhelming first few months in power.

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