According to Moody’s Investors Services (Moody’s), the speed of Pakistan’s budget reduction in the fiscal year 2023 would be hampered by the country’s current economic and political unpredictability.
The credit rating agency stated that Pakistan’s credit profile reflects its low fiscal strength, weak institutions and governance strength, increased external vulnerability risks, and elevated political risks, balanced against a sizable economy and strong growth potential. The report was titled “Government of Pakistan – B3 negative, Annual credit analysis, overview, and outlook.”
According to the rating agency’s research, the social risk in the nation is also very high and reflects the low family incomes, restricted access to fundamental services like healthcare, as well as continuous safety concerns that prevent foreign investments from being made.
Rising inflation, which puts pressure on the current account, the currency, and foreign exchange reserves, has increased and exacerbated Pakistan’s risk of external vulnerability. This is especially true during times of high political and social risk.
The increased danger of Pakistan’s external vulnerability and the uncertainty surrounding the sovereign’s capacity to get extra external funding to cover its demands are what are behind the pessimistic outlook. A rating improvement in the foreseeable future is doubtful due to the gloomy outlook, it was stated.
If Pakistan’s external vulnerability threats diminished considerably and sustainably, the outlook may be modified to stable. This could result from having access to considerable sources of outside funding that dramatically increase foreign exchange reserves.
Resuming fiscal consolidation and demonstrating a considerable improvement in debt affordability, especially via the deployment of revenue-raising measures, would also be credit positive.
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