Moody’s says no-trust move harmful for Pakistan’s economy

Moody’s says no-trust move harmful for Pakistan’s economy

The Moody’s Investor Service said Thursday that the no-confidence motion against Prime Minister Imran Khan could hurdle Pakistan’s smooth reform process.

“We view the no-trust motion as credit negative as it raises uncertainty over policy continuity. It hampers the government’s ability to implement reforms to increase productivity growth and capitalise on external financing, including from the International Monetary Fund (IMF),” the agency stated.

The report said that the motion came at a time when Islamabad is encumbered with spiking inflation and widening current account deficits. Moreover, the rising commodity prices across the globe are wreaking havoc on the global economy, the report said.

A deterioration in Pakistan’s external position, including erosion of foreign exchange reserves and widening of the current account deficit, would hamper the government’s external repayment capacity along with heightening liquidity risks, it cautioned.

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The Service said that Islamabad had faced significant pressure on its foreign reserves in recent months amid a recovery in domestic demand and elevated global commodity prices.

It is pertinent to state that Pakistan is a net oil importer, with petroleum and allied products accounting for about 20% of total imports.

The Russia-Ukraine military conflict has driven the global commodity prices, amplifying pressure on Pakistan’s external position. 

“The deficit will widen to 5-6% of GDP in fiscal 2022 compared with our earlier forecast of 4%,” Moody’s said. “This widening will place pressure on Pakistan’s foreign reserves, which already declined from $18.9 billion in July 2021 to $14.9 billion in February 2022. The reserves are sufficient to cover two months of imports.”

Securing external financing will be crucial for Pakistan to continue to meet its external obligations. The country has a lot of pressure on its foreign-exchange reserves. The no-confidence motion raises uncertainty over the government’s capacity to implement reforms, particularly those intended at broadening the revenue base, the agency said.

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