The recent announcement by Moody’s, an internationally recognized credit rating agency, marks a significant milestone in Pakistan’s economic recovery journey. Following the footsteps of Fitch, Moody’s has upgraded Pakistan’s creditworthiness rating and revised its outlook from stable to positive. This development signals the beginning of an economic revival, even in the face of severe challenges that have gripped the nation. Prime Minister’s endorsement of this assessment as a success of the government’s economic policies highlights the strides made so far. However, the road ahead remains fraught with difficulties that require careful navigation, including ensuring security, ending chaos, and controlling terrorism.
Moody’s has upgraded Pakistan’s local and foreign currency issuance and unsecured debt ratings from Caa3 to Caa2. This upgrade reflects an improvement in the overall economic condition of the country, a moderately improved government liquidity from extremely weak levels, and better external accounts. According to Moody’s, the risk of default has also been downgraded, reflecting growing confidence in the country’s economic stability. The agency’s decision comes on the heels of Pakistan’s successful staff-level agreement with the International Monetary Fund (IMF), which is expected to lead to the approval of a new loan program in the coming weeks. This agreement has bolstered Pakistan’s external financing sources, adding further credibility to its financial outlook.
One of the key factors contributing to this positive outlook is the improvement in Pakistan’s external accounts. Foreign exchange reserves have doubled compared to June 2023, signalling a stronger and more stable economic environment. These practical improvements in the economic indicators have not gone unnoticed, with the World Bank also commenting positively on the government’s fiscal position. The World Bank suggests that with continued support from the IMF program, the government can achieve a better fiscal position than previously expected by further reducing risks related to liquidity and external vulnerabilities.
Despite these promising developments, Moody’s has issued a warning that should not be ignored. The agency highlighted the uncertainty surrounding the government’s ability to maintain and enforce economic reforms. The coalition government, which came into power following the elections in February, lacks a strong electoral mandate, which could hinder its ability to implement revenue-raising measures without exacerbating social tensions. The delay in the implementation of reforms or financial aid from government partners could stall the progress made so far. This warning from Moody’s calls for the full attention of Pakistan’s economic strategists.
The ongoing economic improvement, while commendable, will not translate into relief for the common people unless social unrest and tensions are effectively managed. The rising costs of electricity, gas, and taxes have made the situation increasingly precarious for the average citizen. To address these challenges, the government must consider abandoning policies that disproportionately burden the salaried class and instead explore alternative measures that ensure fair distribution of the tax burden across all segments of society.
One such measure could be the elimination of billions of rupees worth of free benefits enjoyed by the ruling classes, as well as high-ranking civil, military, and judicial officers. Implementing complete austerity in government expenditure is another critical step that could yield significant results. Furthermore, the longstanding agreements with Independent Power Producers (IPPs), where at least two-thirds of the owners are Pakistanis, need to be re-examined and possibly restructured to align with the country’s current economic realities.
The path to economic recovery is undoubtedly challenging, but the recent upgrade by Moody’s provides a beacon of hope. It indicates that the efforts undertaken by the government are bearing fruit, albeit slowly. However, it also serves as a reminder that sustained progress will require a holistic approach that addresses both economic and social dimensions. The government’s ability to navigate this complex landscape will determine the extent to which these improvements can be translated into tangible benefits for the people of Pakistan.
As the country moves forward, it is imperative that the momentum gained through these positive developments is not lost. The government must remain vigilant in implementing necessary reforms, ensuring fiscal discipline, and maintaining social stability. Only then can Pakistan fully realize the potential of this economic recovery and build a foundation for long-term growth and prosperity.
