Moody’s Warning | Editorial

The Moody’s Investors Service has rated Pakistan among the markets most vulnerable to dollar appreciation, which in simple words means that the dollar is getting more valuable in Pakistan and that can have a direct effect on our pocketbooks. Moody’s assessment means Pakistan finds it harder to come good on its foreign loans repayments, besides footing the import bill.
The credit ratings agency had, in June, downgraded the outlook on Pakistan’s rating to negative from stable. It now warns that “sovereigns with relatively-high debt burdens, weak debt affordability and smaller buffers are especially susceptible to a deterioration in their credit profiles in the event of rising funding costs”. And given the size and composition of the balance of payments and foreign exchange reserves, Pakistan finds itself bracketed among countries like Ghana, Mongolia and Zambia.
The credit agency rightly mentions that the Pakistan rupee has experienced marked depreciations against the dollar in about a year’s time. Since December last year, Pakistan’s economic managers have let the rupee fall on four separate occasions, and increased the key interest rate by 175 basis points just this year.
The assessment comes at a time when Pakistan’s foreign exchange reserves have dropped to $10.23 billion — barely enough to cater to a 90-day import bill — while the current account deficit has widened to $17.99 billion in fiscal 2017-18. The Moody’s has warned of an elevated risk of further erosion in foreign exchange reserves unless capital inflows increase substantially — possibly through and in combination with an International Monetary Fund (IMF) programme. No wonder why the new PTI government is considering going back to the IMF for yet another bailout programme.
Published in The Express Tribune, August 27th, 2018.

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