KARACHI: A leading global credit rating agency on Wednesday expressed concern over continuing political uncertainty in Pakistan after the February 8 general elections produced inconclusive results, calling the current situation a credit negative for the country.
Pakistan faces significant macroeconomic challenges, particularly due to its weak external and liquidity situation.
According to independent financial analysts, the country’s new government will need to start tackling daunting economic problems from the first day in office since it will have to negotiate a new International Monetary Fund (IMF) program and take a range of policy measures to rejuvenate the national economy.
Moody’s, an American financial services company, that rates the creditworthiness of borrowers, ranging from private enterprises to governments, said prolonged delays in government formation may further compound Pakistan’s problems.
“Even if a combination of parties successfully form a multiparty coalition government, the coalition may not be very united and politically strong,” it said in a statement. “The new government will face challenges in securing consensus to pursue difficult but necessary reforms, including revenue raising measures, to improve Pakistan’s macroeconomic conditions.”
“Moreover, there is also uncertainty around the extent of public protests because they may challenge the legitimacy of the new government,” it added. “Social tensions may increase, which would likely constrain the government’s ability to undertake reforms.”
According to official data released earlier this month, Pakistan’s foreign-exchange reserves remain low at $8 billion and are only sufficient to cover about six weeks of imports.
Based on the IMF report published in January, the country’s external financing needs are about $22 billion in fiscal 2025 and about $25 billion annually in fiscal 2026 and 2027.
Under the circumstances, the country needs a longer-term financing plan to meet its needs for the next few years, after its current IMF program ends in April 2024.
“Overall, uncertainty around Pakistan’s ability to quickly negotiate a new IMF program after the current one expires in April 2024 remains very high,” Moody’s informed. “Pakistan’s government liquidity and external vulnerability risks will remain very high until there is clarity on a credible longer-term financing plan.”
