Moody’s in its latest report said that Pakistan’s credit profile reflects the country’s “baa2” economic strength, which is underpinned by the robust long-term GDP growth potential and large scale of the economy, balanced against low per capita incomes and global competitiveness.
Its “b2” institutions and governance strength that balances still weak executive institutions and fiscal policy credibility and effectiveness against a lengthening track record of effective checks and balances and judicial independence, as well as increasing monetary and macro prudential policy effectiveness, said the agency.
The government’s “ca” fiscal strength driven by its high government debt burden and narrow revenue base which hinders debt affordability and reduces fiscal flexibility given ongoing infrastructure and social spending needs; and its “b” susceptibility to event risk driven by external vulnerability, as foreign-exchange reserve adequacy, though improving, remains low compared to peers, it added.
However, the rating agency said the review did not involve a rating committee, and this publication does not announce a credit rating action and is not an indication of whether or not a credit rating action is likely in the near future.
Pakistan’s ‘unexpected’ economic growth
It is important to note the economy has sprung a surprise, growing nearly 4% in the outgoing fiscal year on the back of a healthy momentum in all main sectors. The unexpected economic activity beats expectations of the government and the international financial institutions by a wide margin.
Pakistan’s economic growth estimated at 3.9%, almost one percentage point higher than the estimate. The finance minister at the helm was unceremoniously shown the door, just like many others in the past few years pic.twitter.com/qjmdz7CNTr
— Faseeh Mangi (@FaseehMangi) May 22, 2021
The provisional Gross Domestic Product (GDP) growth rate of 3.94% is almost double than the official target of 2.1%. But it was a surprise even for the State Bank of Pakistan and the Ministry of Finance which initially termed the figure unrealistically high during a meeting convened to approve the growth figure.
The 4% growth rate was higher than the SBP’s estimates of 3% and the IMF’s projection of 2% for this fiscal year. The World Bank, too, had predicted a GDP growth rate of no more than 1.5%.
The 103rd meeting of the National Accounts Committee (NAC) approved provisional estimates of 3.94% of the GDP, announced the Ministry of Planning and Development after the meeting. Planning Secretary Hamid Yaqoob Sheikh chaired the NAC meeting –a body having representation of all the stakeholders. In the last fiscal year, the economy had contracted to 0.5%.
Analysts believe that if the current pace of economic growth is maintained, the country is expected to have 6% growth at the end of the ruling party’s term in 2023.