Long-term sovereign credit ratings raised to B
KARACHI: Global rating agency Standard and Poor’s (S&P) on Monday raised Pakistan‘s long-term sovereign credit ratings to B from B- on improved economic outlook and better fiscal and external accounts.
“The outlook on the long-term rating is stable,” the S&P said in a statement. “Pakistan’s policymaking, in our view, has improved the performance of the economy and the prospects for the country’s fiscal and external positions.”
The agency, however, warned that the country’s structural weaknesses, including a narrow tax base and internal and external security risks, weakened the government’s governance and also affected the business performance.
“We may raise our ratings on Pakistan if the country’s security environment settles to an extent that economic growth trends higher, strengthening the country’s fiscal and external positions,” it added.
The agency said the country would continue to benefit from the improved governance under the democratically-elected government, led by Prime Minister Nawaz Sharif. “A now completed three-year reform program, supported by an extended fund facility arrangement with the International Monetary Fund (IMF), has further helped to restore macroeconomic stability, reduce fiscal and external vulnerabilities, and promote growth-supporting reforms that have the potential to improve living standards,” it added.
In September, Pakistan concluded a three-year $6.7 billion IMF program. S&P said it has revised upwards its forecasts of average annual GDP growth to five percent (2.9 percent in real GDP per capita growth terms) over 2016-2019 from the earlier estimate of 4.7 percent.
“This revision reflects improved construction and services sector activity, low-cost oil and finance, and high investment associated with the China-Pakistan Economic Corridor.”
S&P said downside risks to growth stem from the real appreciation of the rupee and an uncertain outlook for exports, remittances, and foreign direct investment. “Inadequate infrastructure, mainly in transportation and energy, adds further downside risks to our growth outlook,” the agency said.
S&P expected that further gradual gains in fiscal consolidation will lead to fiscal deficits of below three percent of GDP by 2018 through tax changes and addressing of expenditure-side rigidities.
“We forecast Pakistan’s gross general government debt to fall below 60 percent of GDP by 2018 and for the ratio of net general government debt to GDP to decline only modestly from 58 percent currently,” it added. Interest expense consumes nearly a third of government revenues and the ratio will likely fall modestly over the period. S&P said the real effective exchange rate of the rupee, “about 16 percent higher over the past three years”, may erode export competitiveness.
Source: Published at: November 01, 2016 at 05:00AM