Moody, the US based credit rating agency has found Pakistan among a host of other countries ‘most vulnerable to dollar appreciation,’ in its latest report on Friday.
According to Moody’s report titled, "Sovereigns - Global Contagion risks greatest where external vulnerability, weak debt affordability meet low policy credibility". The fallout from the correction in Turkey's (Ba3 negative) exchange rate and asset prices highlights again the external vulnerability and sensitivity to a rise in the cost of debt of some emerging and frontier market nations.
Moody highlighted that those economies most sharply hit by weakening exchange rates, wider risk premia and lower capital inflows so far this year share the characteristic of twin current account and budget deficits, while country-specific factors -- often relating to policy credibility -- have likely also fueled the financial market sell-off.
Looking at the size and composition of their balance of payments and the amount of financial buffers in the form of foreign exchange reserves, Moody's identified Argentina, Ghana (B3 stable), Mongolia (B3 stable), Pakistan (B3 negative), Sri Lanka (B1 negative) and Zambia, beside Turkey, as the emerging and frontier market sovereigns most vulnerable to dollar appreciation.
And out of these, Argentina and Pakistan's currencies have experienced particularly marked depreciations against the dollar year to date.
Earlier, another global credit rating agency, Fitch stated that the newly elected government of Pakistan Tehrik-e-Insaf (PTI) will face considerable pressure from the external and fiscal problems marring the country’s economy.
“Pakistan’s incoming PTI-led coalition government, which took office this week, will be under immediate pressure to arrest the deterioration in external finances and address fiscal challenges, as well as to attract the external funding necessary to meet its financing gap,” stated Fitch in a statement.
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