Moody's rating

The well-known credit rating agency Moody's has supported Pakistan's B3 rating premised on a high growth rate but cautioned that serious challenges like the debt burden, weak physical and social infrastructure, fragile external payment position and high political risk remain. The growth rate has been challenged by independent economists as well by Business Recorder because of three extremely disturbing elements in data compilation by the Federal Bureau of Statistics (PBS) under the administrative control of the Ministry of Finance: (i) data released by the PBS is not rationalized with data released by other government departments as well as credible industry sources; (ii) sectoral growth rates have been jacked up without adjusting the sub-sector growth rates or expenditure; and (iii) data from two years ago was downgraded during the first year of the current tenure of the Sharif administration to enable the Finance Minister to claim that the country achieved the highest growth rate ever.
Be that as it may, a B rating is judged by Moody's to have speculative intrinsic or standalone financial strength subject to high credit risk, absent the possibility of extraordinary support from an affiliate or a government while the number 3 indicates a ranking in the lower end in B's category. Moody's rated India at Baa3 (placing the country in lower medium grade), Bangladesh at Ba3 (non-investment grade speculative), Sri Lanka at B1 (highly speculative), Maldives at B2 (highly speculative) and Pakistan at B3 (highly speculative as well though on a lower scale than countries rated as B1 and B2). In short, Pakistan continues to be rated the lowest within the region though there is no rating for Afghanistan and Nepal. Standard and Poor's and Fitch rated Pakistan better - at B, though as per these other rating agencies too Pakistan rated the lowest within the region.
There is however no doubt that our rating has improved in recent years. In July 2012, the country was rated the lowest ever - Caa - which is a downgrade from B's highly speculative to extremely speculative with substantial risks though Pakistan was not rated at Caa3 defined as in default with little prospect of recovery. Nonetheless it is relevant to note that in 2012 the 2008 three-year Stand-By Arrangement had been suspended by the International Monetary Fund (IMF) with two tranches not released for the PPP-led coalition government's failure to implement the politically challenging fiscal and power sector reforms prompting other multilaterals and bilaterals to suspend nearly all budgetary support. In other words, going back on another IMF programme would have automatically upgraded the country's rating based on the strict monitoring of politically challenging conditions by the Fund staff.
Pakistan is currently not on an IMF programme and this has raised red flags in Moody's which in its latest analysis noted that we would view a stalling of the government's post-IMF programme economic reform agenda, material widening of the fiscal deficit, a deterioration in the external payments position, withdrawal of bilateral and multilateral support or a more unstable political environment as credit negative.
To conclude, a rating agency's primary objective is to assess the ability of the country to repay its loans. Pakistan today is at a crossroads because this administration has taken the unprecedented and disturbing decision to procure short-term high interest bearing loans from the commercial banks abroad and at present a bit over 2 billion dollars has already been borrowed. Foreign exchange earnings from exports are declining, with imports remaining high in spite of a dramatic decline in our import oil bill, remittances are on the decline due to the recession in Arab countries as well as in the West and foreign currency debt repayments are being artificially controlled through an overvalued rupee that, in turn, is negatively impacting on our exports and remittances. These are seriously flawed policies and one would urge the government that they be revisited though there is little hope as previous exhortations have fallen on deaf ears.