RATING PAKISTAN'S ECONOMY

BY: Noman Jamil (110141)

PAKISTANS CURRENT RATING

Moodys and Standard and Poors (S&P) the two most influential international rating agencies have reviewed Pakistans current economic strength and future outlook and arrived at different conclusions. Moodys downgraded Pakistans sovereign credit rating by one notch, that is, from B3 to Caa1 with negative outlook. The S&P has maintained its previous rating for Pakistan at B-minus with stable outlook.

CREDIT RISK COUNTRY

Both the agencies have termed Pakistan as a high credit risk country with possibility of default not being ruled out.

REASONS FOR DOWNGRADING

Moodys identified four major reasons for downgrading sovereign credit ratings. It includes The deterioration in balance of payments Large repayment to the IMF Declining foreign exchange reserves, Institutional weakness

ECONOMIC IMPLICATIONS
It will increase the confirmation charges of Letter of Credit thereby raising the cost of doing business in Pakistan. The private sector is likely to pass on the increase in charges to the consumers. The cost of foreign and local currency borrowing is likely to rise with implications for debtservicing.

S&P CREDIT RATING

S&P maintained its previous rating for Pakistan at B-minus with stable outlook .S&P has taken into account the weak fiscal balance and the associated rise in public and external debt, lower economic growth, and weak political and policy environment. These constraints were balanced against the rising inflow of remittances, which still help sustain adequate external liquidity position.

BUDGET DEFICIT AND

BORROWINGS
o Over the last several years, Pakistan has proven itself to be one of the most fiscally irresponsible countries in the world with a budget deficit averaging 6.5 percent of the GDP and touching 8.5 percent in 2011-12. o It has broken all the records of borrowing from the banking system (Rs1268 billion) in 2011-12 with average borrowing of Rs3.5 billion per day.

ECONOMIC GROWTH
Economic growth has decelerated to an average of 3.0 percent and investment is down to 12.5 percent of the GDP the lowest in 60 years Inflation has been persisting at double-digits for 5 years in a row, and foreign investment is on the verge of extinction.

CONCLUSION
To improve the credit rating, government should take the economy seriously. Government should bring fiscal discipline which means turning off the currency printing press, taking concrete steps to revive the economy, restoring the investors confidence and addressing the issues of energy bottlenecks. These steps must be taken otherwise Pakistan face further downgrading of sovereign credit rating.