Reforms will bring ratings

Pundits at the stock market and Ministry of Finance are triumphant over the Moody's revised outlook on Pakistan's foreign currency government bond as well as on the outlook of big five banks ratings. In both cases, the ratings remained same with the outlook changing from negative to stable.
KSE100 crossed 30,000 and punters expect the journey up north to continue. Privatization Commission is all set to offload secondary shares of a few blue chip companies. This all can be bargained at a good price. Not bad, especially, if they lure foreign investors. It is relatively easier attracting foreign portfolio investment these days than a couple of years back.
Global capital is diverting to emerging and developing economies; the global market has enough appetite to consume all kinds of junk bonds. Hence, Pakistan can go for more Eurobonds or Sukkuk offerings in the international market.
Don't get carried away by the mere improvement in outlook of credit ratings or at the access to global debt market. The policymakers focus should instead be on implementing the long-due, now- much-delayed and much-need structural, fiscal and energy reforms.
Without it, any exogenous factor can badly affect the balance of payment situation. Rising external debt is posing serious threat to the sustainability of reserve building. When the PPP government left, the external debt was $59.8 billion (19.6% of GDP). The PML-N government in its first year has increased the same to $66.1 (21.5% of GDP). Some job that! External debt is expected to swell to $79.3 billion by FY18.
These vulnerabilities, coupled with security risks are embedded in the Moody's rating, as on comparison to regional and similar economies, Pakistan's standing is in the lowest percentiles. Our Moody's credit rating is at Caa1, (it is at B- by S&P) while its score on TE rating is a mere 11 out of maximum of 100.
The TE credit rating is driven by a model created at Trading Economics. They take into account the average grade given by credit rating agencies plus multiple economic indicators, exchange rates, government bond yields, stock indexes, and commodity prices. Its much easier to comprehend and compare TE ratings since they are expressed in numbers and have a very little subjectivity involved in computation.
India's rating is Baa3 (Moody's) and BBB-(S&P) and 47 on TE. No wonder, foreign portfolio and strategic investors are keener to invest there. Bangladesh (Ba2, Moody's and BB-, S&P) has also a much higher TE score. This may explain why textile businesses have flourished there while its struggling to grow at home. Sri Lanka also scores more than thrice of Pakistan at (37.5 on TE, Moody's, B1 and S&P, B+).
Lets have a look at Asian tigers, with whom Pakistan was compared a couple of decades ago. Thailand (Baa1, Moodys, BBB+, S&P) is close to six times Pakistan's score on TE (58.8)--Thai's are demonstrating that how tourism can change the dynamics of a country. Indonesia, which is a Muslim country and has similar demographics like Pakistan, has Baa3 and BB+ on Moody's and S&P, respectively, is rated even better than India by TE at 48.5.
Even, African countries and poor countries like Vietnam are graded much higher than us. This may all explain why bond yield for Pakistan's Eurobond was much higher than the rest. We better focus on improving the structure of our macro-economy and beat the victory drum even if we raise bonds comparable to rates of even Sri Lanka.