Stabilising on the S&P radar

It is not an easy time for Pakistan today, especially considering the political mayhem getting in the way of economic priorities. Yet, the country has managed to defend itself against any rating downgrade so far. The S&P rating services has reaffirmed Pakistans long-term and short-term sovereign credit rating as B- and B respectively, along with a stable outlook.
But Pakistans domestic political unrest and precarious external situation have not gone unremarked by S&P. The growing political chaos not only hampers governments efficiency to carry out the reforms process but also affects the sentiments of foreign investors and international donor agencies. Although S&P deems Pakistans political situation as more stable than a few years ago, there is still a great deal of catch-up required to bring the country on track.
Not to miss the ailing bureaucratic setup of public agencies and the associated corruption levels thwarting the performance of the government and its institutions. Economic state is not likely to fare well unless structural grounds are made strong and the processes are knocked together efficiently.
On the economic front, precarious fiscal profile, lack of elasticity on the monetary side, low external liquidity, low per capita income and high public debt have been the highlighted as the crucial factors. Yet, rising levels of foreign exchange reserves in recent months have played a role in easing the external liquidity risks, where timely disbursements of tranches from IMF and FDI inflows are expected to further strengthen the reserve position. Moreover, continuous decline in international oil prices would be an added perk.
Economic performance, as depicted by investment and job growth, has also not secured a good rank on the S&P scorecard. Also, low income levels have been regarded as a rating constraint by S&P. Besides, slow progress on energy reforms and daunting power shortages prevailing in the country carry the burden of weighing down the countrys economic progress.
Yet, accreditation on the progress in increasing foreign exchange reserves, improving fiscal profile and energy supply under the IMF program is to be cherished. However, much depends on the advancements in structural reforms and the prevailing security risks. Any improvements on these fronts would lead to the possibilities of a better rating while any deterioration in security and political circumstances or governments inability to do well on the reforms front may take it down a notch.

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Islamic Republic of Pakistan - Ratings Score Snapshot

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Key Rating Factors                                          Verdict

Institutional and governance effectiveness                 weakness

Economic structure and growth                              weakness

External liquidity and international investment position    neutral

Fiscal flexibility and performance                         weakness

Debt burden                                                weakness

Monetary flexibility                                        neutral

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