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Moody's sees hurdles to Pakistan ratings
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Moody's Investors Service says while many of the credit stresses, which led to the downgrade of Pakistan to B2 from B1 in May 2008 are still present, the rapid depletion of the country's foreign exchange reserves has now emerged as the most imminent risk facing its sovereign ratings and country ceiling.
"At the same time, delays in the ability of its fiscal authorities to wean themselves away from central bank financing of the budget deficit also represent a formidable obstacle for improving inflationary expectations and reducing pressure on the Pakistani rupee," said Aninda Mitra, a vice-president and senior analyst with Moody's Sovereign Risk Unit.
"Accordingly if, in coming months, Moody's concludes that a deterioration in Pakistan's credit fundamentals is becoming irreversible, then negative rating actions may follow," Mitra said.
Mitra's remarks coincided with the release of a Moody's special comment – which he authored – on Pakistan entitled "Pakistan's government faces pressing challenges".
The report highlights the political environment as crucial to the country overcoming its current challenges. "The critical ingredient for ensuring the success of ongoing policy adjustments and structural reforms as well as negotiations for external assistance and assuaging foreign investor sentiment is an improvement in domestic political stability," Mitra said.
"If the government remains unable to govern effectively, then discordant policies and their weak implementation could further set back investor confidence," he said.
"In turn, such a development may damage Pakistan's balance of payments stability as well as the government's fiscal financing prospects and raise the likelihood of sovereign payment arrears or enforcement of deposit controls," the analyst said.
The report also says Musharraf's resignation may help in limiting domestic political polarisation and policy uncertainty and the Pakistani authorities now have a window of opportunity for strengthening policy implementation. A better economic performance along with a healthy relationship between the country's politicians and military should help curb the destabilising influence of the Taliban and religious militancy, Moody's said.
Account deficit widens 24%
Pakistan's current account deficit widened 24 per cent to $1.01bn (Dh3.7bn) in July from a year ago, the central bank said yesterday, fuelling pressure on the country's depleting reserves and falling currency.
Analysts said while growth in the current account deficit in July was below a monthly average rate of $1.3bn over the past nine months, the widening gap added pressure on authorities to find ways to pay for imports. "The underlying trend suggests some moderation of pressure. It is not a bad beginning for fiscal year 2009," said Asif Ali Qureshi, an analyst at Invisor Securities.
"At the same time, delays in the ability of its fiscal authorities to wean themselves away from central bank financing of the budget deficit also represent a formidable obstacle for improving inflationary expectations and reducing pressure on the Pakistani rupee," said Aninda Mitra, a vice-president and senior analyst with Moody's Sovereign Risk Unit.
"Accordingly if, in coming months, Moody's concludes that a deterioration in Pakistan's credit fundamentals is becoming irreversible, then negative rating actions may follow," Mitra said.
Mitra's remarks coincided with the release of a Moody's special comment – which he authored – on Pakistan entitled "Pakistan's government faces pressing challenges".
The report highlights the political environment as crucial to the country overcoming its current challenges. "The critical ingredient for ensuring the success of ongoing policy adjustments and structural reforms as well as negotiations for external assistance and assuaging foreign investor sentiment is an improvement in domestic political stability," Mitra said.
"If the government remains unable to govern effectively, then discordant policies and their weak implementation could further set back investor confidence," he said.
"In turn, such a development may damage Pakistan's balance of payments stability as well as the government's fiscal financing prospects and raise the likelihood of sovereign payment arrears or enforcement of deposit controls," the analyst said.
The report also says Musharraf's resignation may help in limiting domestic political polarisation and policy uncertainty and the Pakistani authorities now have a window of opportunity for strengthening policy implementation. A better economic performance along with a healthy relationship between the country's politicians and military should help curb the destabilising influence of the Taliban and religious militancy, Moody's said.
Account deficit widens 24%
Pakistan's current account deficit widened 24 per cent to $1.01bn (Dh3.7bn) in July from a year ago, the central bank said yesterday, fuelling pressure on the country's depleting reserves and falling currency.
Analysts said while growth in the current account deficit in July was below a monthly average rate of $1.3bn over the past nine months, the widening gap added pressure on authorities to find ways to pay for imports. "The underlying trend suggests some moderation of pressure. It is not a bad beginning for fiscal year 2009," said Asif Ali Qureshi, an analyst at Invisor Securities.