Pakistan’s economy has been on a steep downhill path since the PLM-N led coalition government took over. On Friday, October 21, came another setback when global credit rating agency Fitch Ratings downgraded Pakistan’s long-term foreign-currency issuer default rating (IDR) to CCC+ from B-.
The rating agency says that it typically does not assign Outlooks to sovereigns with a rating of “CCC+” or below. However, the agency believes the downgrade reflects further deterioration in Pakistan’s external liquidity and funding conditions, and the decline of foreign exchange (FX) reserves. This is partly a result of widespread floods, which will undermine Pakistan’s efforts to rein in twin fiscal and current account deficits.
The move came despite Ishaq Dar’s assurances that Pakistan, while being under the International Monetary Fund loan program, has full arrangements worth around $36-40 billion to repay foreign debt. However, the rating agency ignored Pakistan’s assurances.
One of the apparent reasons for further downgrading Pakistan’s credit rating is Finance Minister Ishaq Dar’s recent visit to Washington where he failed to convince the IMF and World Bank to give Pakistan some concessions regarding rescheduling of loan repayments and easing up on the non-negotiable conditions set by the IMF on grant of subsidies due to floods devastation.
It seems the flood sympathy card has run its course. International lenders and donors are no longer willing to back political agendas of governments that placate elite lobbying and the electorate. The World Bank Group President in Washington is reported to have advised Ishaq Dar to implement fiscal and energy reforms to stabilize the economy for sustained growth. Set your house in order, no more excuses, is the message that all international lenders are sending out.
The most worrying fact is that the country’s budgetary consolidation is not taking place despite the agreement with the IMF. Contrary to all expectations, additional financing from other donors is not forthcoming. In the background of the looming global recession, and uncertainty in markets, the multilateral and bilateral creditors have little room left to accommodate Pakistan.
Many independent economists have highlighted the economy’s ongoing decline and suggested solutions such as drastic austerity measures, increase in exports and reducing dependence on imports, as well as facilitating foreign direct investment. However, critical decisions are not easy to make amid a climate of political divisiveness, economic uncertainty, and immature discourse driven by political protagonists. Even though the government has implemented some austerity measures, the average person still faces financial difficulties.
In this economic quagmire, the ability to deal with these challenges depends on political and economic stability and intellectual quality of the state that seems to be missing in the country.
