No-trust motion against could hurt reform process in Pakistan: Moody's

No-trust motion against could hurt reform process in Pakistan: Moody's

Business

We now expect the deficit to widen to 5-6% of GDP in fiscal 2022: Moody's

ISLAMABAD (Dunya News) - Moody’s Investors Service has viewed the no-confidence motion as credit negative for Pakistan on Monday because it raises significant uncertainty over policy continuity, as well as the government’s ability to continue to implement reforms to increase productivity growth and secure external financing, including from the International Monetary Fund (IMF).

Moody’s in its latest report said that the aforestated move might create difficulties to secure external financing, including from the International Monetary Fund (IMF).

A further deterioration in Pakistan’s external position, including significant widening of the current account deficit and erosion of foreign exchange reserves, would threaten the government’s external repayment capacity and heighten liquidity risks, it cautioned.

The agency said that Pakistan had faced significant pressure on its foreign-exchange reserves in recent months, amid elevated global commodity prices and a recovery in domestic demand.

The Russia-Ukraine military conflict that drove up the global commodity prices has amplified pressure on Pakistan’s external position. The country is a net oil importer, with petroleum and related products accounting for about 20% of total imports.

“We now expect the deficit to widen to 5-6% of GDP in fiscal 2022 (ending June 2022) compared with our previous forecast of 4%,” Moody’s stated. “This further widening will place immense pressure on Pakistan’s foreign reserves, which declined to $14.9 billion as of February 2022 from $18.9 billion in July 2021 which are sufficient to cover only around two months of imports.”

Securing external financing, including from the IMF, will be key for Pakistan to continue to meet its external obligations given the pressures on its foreign-exchange reserves.

However, the no-confidence motion raises significant uncertainty over the government’s capacity to commit to implementing reforms, particularly those aimed at broadening the revenue base. How Pakistan will approach the IMF program from this point on is uncertain, and its participation could be in doubt, the agency said.