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Standard & Poor’s sees stable economic, fiscal outlook for Pakistan
Khaleeq KianiUpdated October 31, 2017
58
0
ISLAMABAD: Disregarding prevailing political uncertainty, Standard & Poor’s affirmed on Monday Pakistan’s stable economic and fiscal outlook for the short and long terms with a downward expectation on the external-sector performance.
In doing so, the New York-based rating agency maintained its ‘B’ long-term and short-term sovereign rating on Pakistan and also on senior, unsecured debt and sukuk.
“The stable outlook reflects our expectations that Pakistan’s external and fiscal metrics will not worsen materially from their current levels. We believe the country’s economic prospects remain favourable,” S&P said, adding that policymaking and the reform process will remain held back until at least the 2018 election.
At the same time, however, the rating agency said it revised downwards its expectation of Pakistan’s external-sector performance, due in particular to an expected surge in imports stemming from substantial energy and infrastructure-related projects under the China-Pakistan Economic Corridor (CPEC) for the next two years. However, these external imbalances were expected to abate after the peak of CPEC investments in energy and infrastructure that should benefit Pakistan with robust growth.
The company said it may raise Pakistan’s rating if the country’s security environment settled to an extent that economic growth continued to trend higher, strengthening its fiscal and external positions. Conversely, it may lower ratings if the current infrastructure investments do not yield any positive impact on macroeconomic stability.
“Indications of this would include GDP growth below our forecast, or external or fiscal imbalances higher than what we expected.”
S&P anticipated that further fiscal consolidation might be challenging, owing to lower-than-expected performance at the provincial level and the upcoming election in June 2018. It said Pakistan’s ratings were constrained by a narrow tax base and domestic and external security risks, which continue to be high. These factors weaken the government’s effectiveness and weigh on the business climate.
Talking about the institutional and economic profile, the agency said political changes were unlikely to lead to economic turbulence and the 2018 general election will have a limited impact on the policy and macroeconomic environment. Also, the very low income level was counted as a rating weakness, and inadequate infrastructure and security risks continue to act as structural impediments to foreign direct investments.
Notwithstanding the next year’s election outcome, S&P expected government policies to remain broadly unchanged.
The International Monetary Fund (IMF) programme helped restore macroeconomic stability, reduced fiscal and external vulnerabilities and promoted growth-supporting reforms that have the potential to improve living standards, it said.
The rating agency estimated Pakistan’s GDP per capita at $1,500 in 2017 – at the bottom 10 per cent of all sovereigns rated by S&P – and upgraded its forecast of annual GDP growth to average 5.7pc over 2017-20, reflecting large-scale CPEC investment totalling $60 billion. “Nevertheless, Pakistan’s per capita GDP growth is around 3pc, in line with peers’ at this income level, due to a fast-growing population.”
The company said Pakistan suffered from domestic security challenges and long-lasting hostility with neighbouring India and Afghanistan while inadequate infrastructure, mainly in transportation and energy, were bottlenecks to foreign direct investments. “The government has improved the security situation. It has also been closing infrastructure shortfalls through energy-sector reforms, such as changes to tariff structures that have cut energy subsidies and reduction in power outages for industrial consumers”.
It said Pakistan’s flexibility and performance profile metric have deteriorated but remained in line with its rating level and forecast net general government debt to slightly exceed 60pc of GDP in 2017-18. Pakistan’s interest-servicing burden has reduced but remains extremely heavy as a share of fiscal revenue.
Published in Dawn, October 31st, 2017
Khaleeq KianiUpdated October 31, 2017
58
0
ISLAMABAD: Disregarding prevailing political uncertainty, Standard & Poor’s affirmed on Monday Pakistan’s stable economic and fiscal outlook for the short and long terms with a downward expectation on the external-sector performance.
In doing so, the New York-based rating agency maintained its ‘B’ long-term and short-term sovereign rating on Pakistan and also on senior, unsecured debt and sukuk.
“The stable outlook reflects our expectations that Pakistan’s external and fiscal metrics will not worsen materially from their current levels. We believe the country’s economic prospects remain favourable,” S&P said, adding that policymaking and the reform process will remain held back until at least the 2018 election.
At the same time, however, the rating agency said it revised downwards its expectation of Pakistan’s external-sector performance, due in particular to an expected surge in imports stemming from substantial energy and infrastructure-related projects under the China-Pakistan Economic Corridor (CPEC) for the next two years. However, these external imbalances were expected to abate after the peak of CPEC investments in energy and infrastructure that should benefit Pakistan with robust growth.
The company said it may raise Pakistan’s rating if the country’s security environment settled to an extent that economic growth continued to trend higher, strengthening its fiscal and external positions. Conversely, it may lower ratings if the current infrastructure investments do not yield any positive impact on macroeconomic stability.
“Indications of this would include GDP growth below our forecast, or external or fiscal imbalances higher than what we expected.”
S&P anticipated that further fiscal consolidation might be challenging, owing to lower-than-expected performance at the provincial level and the upcoming election in June 2018. It said Pakistan’s ratings were constrained by a narrow tax base and domestic and external security risks, which continue to be high. These factors weaken the government’s effectiveness and weigh on the business climate.
Talking about the institutional and economic profile, the agency said political changes were unlikely to lead to economic turbulence and the 2018 general election will have a limited impact on the policy and macroeconomic environment. Also, the very low income level was counted as a rating weakness, and inadequate infrastructure and security risks continue to act as structural impediments to foreign direct investments.
Notwithstanding the next year’s election outcome, S&P expected government policies to remain broadly unchanged.
The International Monetary Fund (IMF) programme helped restore macroeconomic stability, reduced fiscal and external vulnerabilities and promoted growth-supporting reforms that have the potential to improve living standards, it said.
The rating agency estimated Pakistan’s GDP per capita at $1,500 in 2017 – at the bottom 10 per cent of all sovereigns rated by S&P – and upgraded its forecast of annual GDP growth to average 5.7pc over 2017-20, reflecting large-scale CPEC investment totalling $60 billion. “Nevertheless, Pakistan’s per capita GDP growth is around 3pc, in line with peers’ at this income level, due to a fast-growing population.”
The company said Pakistan suffered from domestic security challenges and long-lasting hostility with neighbouring India and Afghanistan while inadequate infrastructure, mainly in transportation and energy, were bottlenecks to foreign direct investments. “The government has improved the security situation. It has also been closing infrastructure shortfalls through energy-sector reforms, such as changes to tariff structures that have cut energy subsidies and reduction in power outages for industrial consumers”.
It said Pakistan’s flexibility and performance profile metric have deteriorated but remained in line with its rating level and forecast net general government debt to slightly exceed 60pc of GDP in 2017-18. Pakistan’s interest-servicing burden has reduced but remains extremely heavy as a share of fiscal revenue.
Published in Dawn, October 31st, 2017
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