‘Pakistan’s low competitiveness dims growth prospects’

KARACHI: Rating agency Moody’s on Tuesday said Pakistan’s very low global competitiveness and diminishing per capita income keep the country’s growth prospects dim.

Moody's Investors Service, in a periodic review of ratings action, said the country’s credit profile reflects its ‘moderate (+)’ economic strength, “which is underpinned by the relatively robust GDP growth potential and large scale of the economy, limited by very low per capita incomes and global competitiveness”.

Moody’s didn’t announce any change in the country’s rating. In December last year, it reaffirmed rating of B3 negative for Pakistan that reflected its high external vulnerability, weak debt affordability, and very low global competitiveness.

The credit rating agency had, however, kept the growth forecast upward at 4.7 percent for the current fiscal year compared with 2.7 to 2.8 percent projected by the International Monetary Fund and the World Bank. The country’s growth scaled back to 3.3 percent in the last fiscal year from a decade-high of 5.5 percent in the preceding fiscal year.

Other key growth obstacle, Moody’s said is very low institutional strength that takes into account very weak scores in the Worldwide Governance Indicators. Yet, greater central bank autonomy has increased monetary policy effectiveness, it added.

The central bank abandoned its soft monetary policy stance in January 2018 and since then it pushed the key benchmark interest rate up by 750 basis points to ease inflationary impact and maneuver overvalued rupee. The policy stance brought the current account deficit down. But, fiscal indiscipline is still posing a challenge to the economy with one of region’s lowest tax-to-GDP ratio.

“The government's ‘very low (-)’ fiscal strength owing to its very narrow revenue base hinders debt affordability, reduces fiscal flexibility and increases the debt burden given ongoing infrastructure spending needs and rising interest expense,” Moody’s said.

The new government, having completed one year in office, couldn’t bridge gap between revenue and expenditures despite taking several administrative and taxation measures. Fiscal deficit widened to 8.9 percent in FY2019 from 6.6 percent in FY2018.

Tax-to-GDP ratio fell to 11.6 percent in the last fiscal year of 2018/19 from 13 percent a year earlier. Moody’s further warned that there is high susceptibility to event risk driven by heightened external vulnerability, “as external pressures continue to weigh on the country's foreign-exchange reserve adequacy, while political and government liquidity risks remain elevated in Pakistan”.