Moody’s upgrades Pakistan’s outlook to ”stable” from ”negative”

Pakistani government is planning to introduce a new State Bank of Pakistan (SBP) Act to forbid central bank financing of government debt.

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  • “Pakistan will continue to improve due to new reforms and currency flexibility”- Moody’s
  • Moody’s presumes Pakistan’s current account deficit will continue to decrease in the current and next fiscal year.

Moody's

Moody’s Investors Services (Moody’s) has confirmed that the local and foreign currency of Pakistan’s long-term issuer and senior unsecured debt ratings at B3 has changed to ”stable” from ”negative”.

Moody’s further stated these dynamics will continue to improve due to new reforms and currency flexibility. Current fiscal reforms, including the International Monetary Fund (IMF) program, will alleviate risks related to debt sustainability and government liquidity.

Account Deficit:

Reduction in current account deficits will be introduced by introducing new reforms, including currency flexibility, lower external vulnerability risks in Pakistan. However, foreign exchange reserves’ adequacy will take time to reconstruct.

Moody’s presumes Pakistan’s current account deficit will continue to decrease in the current and next year (ending June of each year), averaging around 2.2% of GDP.

A decrease in imports will remain the main reason for decreasing the current account deficit. Currently, Pakistan is focusing on raising trade competitiveness by increasing exports, resulting in reducing the trade deficit.

According to Moody’s,

“Pakistani government is planning to introduce a new State Bank of Pakistan (SBP) Act to forbid central bank financing of government debt and clarify SBP’s primary objective of price stability”.

IMF Program:

The IMF program, which commenced in July 2019, targets higher foreign exchange reserve levels and has unlocked significant external funding from multilateral partners including the Asian Development Bank and the World Bank.

To widen the tax net, Pakistan has eliminated a number of tax immunities and reductions and lowered the minimum threshold for personal income taxes.

Moreover, support from the IMF and the World Bank will raise the effectiveness of the revenue measures.

Originally published in Moody’s 

Also See:

”Pakistan Stocks Outperform The World’s Leading Stock Markets During The Last Three Months” – Bloomberg

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