EDITORIAL: It seems only natural that everybody is drawing their own conclusions from the fact that the Fitch Ratings has affirmed Pakistan's long-term foreign currency Issuer Default Rating (IDR) at B- with a stable outlook. Speaking for the government, Advisor to Prime Minister on Finance Dr Abdul Hafeez Sheikh said that one of the top rating agencies of the world had maintained its rating, despite the overwhelming burden of the coronavirus pandemic and the global recession associated with it, which "shows the growing confidence of the international institutions on economic policies of the country." Yet there are also those who are pointing out to the pretty clear fact that had anybody at Fitch really been that impressed, surely they would have pushed the rating up a notch. That it was not changed proves, in fact, that things are pretty much as they were, which means there is still a lot to be concerned about. Fitch itself said the B- reflects 'weak public finances, including large fiscal deficits and a high government debt/GDP ratio, a challenging external position characterised by large external debt repayments against low foreign exchange reserves and low governance indicator scores'. But, to be fair, the report also concluded that external finances appear resilient enough mainly due to sound policy action on the part of the government and continuing multi- and bilateral support.
There can be no denying that Pakistan has handled the pandemic well enough to be on the way to pretty much waltzing out of it. Had the government faltered when it decided to enforce smart lockdowns and slowly open up the economy, we could well have ended up like neighbouring India, where things are simply out of control and the virus is spreading at the speed of light. All this led Fitch to cut its sovereign rating outlook for India from stable to negative a month or so ago, not long after Moody's also downgraded it to just above junk, precisely because the agencies believed that the coronavirus had 'significantly weakened India's growth outlook for this year and exposed the challenges associated with a high public debt burden'. Most probably why Pakistan passed Fitch's test this time, in addition to all the fiscal and monetary measures to stay afloat during the pandemic of course, is that we are locked in a programme with the International Monetary Fund (IMF) at this point in time. In April, the Fund approved $1.4 billion in financing through its Rapid Financing Instrument (RFI) and the 39-month, $6 billion programme, which began in July 2019, although suspended for the moment, remains in place. Such arrangements, when the IMF is committed with a country and can keep an eye on its finances, works well with international creditors and ratings agencies usually.
Pakistan's record also speaks for itself. For all the financial troubles we have had over the years and all the debt we have had to incur, the country has to its credit never defaulted on any of its payment obligations. And while maintaining the stable outlook means not much has improved, it also shows that things have also not fallen apart like they have in many other parts of the world as everything from production and output to income and employment has been affected by the pandemic. Plus a very useful purpose that reports like Fitch's serve is that they provide expert and impartial outside analysis about the state of the economy. Now that this report has pointed out a number of vulnerabilities, while also appreciating all the right steps taken, the government is in a much better position than before to know just what it needs to do to improve things.
Foreign investors tend to take what these ratings agencies say very seriously before they decide which destination to bless with their presence. A lot of them would have noticed that an emerging market like Pakistan has been able to maintain its stable rating when many around it, and also elsewhere in the world, are just falling over and being downgraded. And now the more serious of them would be keeping an eye on just what measures the government introduces to remove all the obstacles mentioned in the Fitch report. So the finance ministry can celebrate the report all it wants, but hopefully it will know just what to do with it.
Copyright Business Recorder, 2020