KARACHI: Moody’s Investors Service, a renowned international credit rating agency, has stated that the International Monetary Fund’s (IMF) examination of Pakistan was completed successfully, indicating that the country’s institutions and governance strength are likely to improve.
The rating agency Moody’s said in a statement on Friday that the IMF recognized Pakistan’s macroeconomic and fiscal management as more credible.
“The country’s recent attempts to shore up fiscal balances have been supplemented by more orthodox monetary policy,” it stated.
The enhancement of central bank autonomy through the State Bank of Pakistan (SBP) Amendment Bill 2021, according to Moody’s, would provide the SBP more confidence in its ability to regulate inflation and limit direct financing of government debt.
Further progress on tax reforms is expected to result in a gradual rise in revenue, as well as an improvement in debt affordability.
Nonetheless, the IMF stated that more structural changes are needed, particularly in the energy and state-owned company sectors, in order to build a business environment that is conducive to investments and private sector development.
Continued improvement in these areas, according to Moody’s, will not only boost economic productivity and competitiveness but also minimize contingent liability risks.
“We believe Pakistan remains committed to advancing further reforms under the IMF programme, which would likely enable additional payments,” the report added. “However, given that elections are expected for late 2023, the government’s ability to maintain the momentum of changes, particularly those targeted at increasing its revenue base, or to commit to an immediate successor programme, is uncertain beyond the program’s expiration in September 2022.”
Pakistan’s current account deficit is expected to rise to 3-3.5 percent of GDP in fiscal year 2022, according to the rating agency. The IMF allocation will help to relieve some of the pressure on foreign exchange reserves while also allowing for further funding from other government sources, according to the statement.
“Following that, we expect global oil and commodity prices to moderate, constraining growth in the import bill,” Moody’s added, “while the ongoing global economic recovery will help exports and remittance inflows.”
“As a result, we expect the current account deficit to reduce and stabilize at 2-3 percent of GDP over the next two to three years.”
The successful disbursement is credit positive, bolstering Pakistan’s foreign exchange reserves, which have been under pressure in recent months due to a sharp widening of the current account deficit, which was exacerbated by higher global oil and commodity prices, which contributed to a massive goods trade deficit.
