Moody’s expects high indebtedness, fund paucity to hurt Pakistan’s economy

KARACHI: Rating agency Moody’s on Wednesday painted a gloomy picture for struggling Pakistan’s economy amid coronavirus spread, saying high debt burden and weaker fiscal balances would hamstring the country’s ability to combat the pandemic.

Moody’s Investors Service said Pakistani government might be “constrained by already high indebtedness and limited access to funding”. “Over the past few days, countries in Asia Pacific (APAC) and across the globe have intensified restrictions on their populations as the coronavirus has spread rapidly,” Moody’s said in a report. “In APAC, the intensification of the outbreak will prompt significant economic weakening as slowing domestic consumption exacerbates disruptions to supply chains and cross-border trade of goods and services.”

However, the rating agency said substantial policy buffers in some of the worst-affected economies would allow governments to mitigate the credit-negative impact. “Central banks and financial regulators have started to ease policy rates or allowed regulatory forbearance.”

The State Bank of Pakistan (SBP) reduced the policy rate by 75 basis points to 12.50 percent in latest monetary policy – for the first time after four years. The reduction, however, left markets devastated as they were expecting 100 to 200 basis points cut to spur sluggish growth feared to be further impeded by COVID-19 fallouts.

Moody’s sees double whammy of higher debt burden and weaker fiscal balances faced by Pakistan. It earlier maintained B3 (stable) rating for the country.

Moody’s warned Pakistan of “the greatest external pressure”. The rating agency expected the economy’s growth to decelerate to 2.5 percent during the current fiscal year of 2019/20 from an estimated 3.3 percent in the previous fiscal year. Growth is likely to rebound in the next fiscal year with a one percentage point jump, it said.

The SBP also revised down growth projection to 3 percent from 3.5 percent for the current fiscal year, as domestic demand is expected to slow down on supply disruptions.

The International Monetary Fund (IMF) forecast the country’s external debt to reach $113 billion in the current fiscal year. IMF gave a waiver to Pakistan from including coronavirus expenditures into budget deficit, under a $6 billion loan program approved last year.

Pakistan was given a target to curtail the budget deficit to 7.5 percent of GDP in FY202 under the IMF program. The revenue target was revised down to Rs5.238 trillion from Rs5.555 trillion. The government requested the IMF to further revise it down to Rs4.8 trillion for the current fiscal year, keeping in view the halting economic activities and the possibility of more revenue shortfall. An official earlier this week told The News that overall collection might end up at Rs4.5 trillion till June-end. “If the coronavirus prolongs for few months then the FBR would further face revenue loss of Rs100 billion on a monthly basis in the remaining four months (March to June) of the current fiscal year,” the official said, requesting anonymity.