By Staff Reporter
ISLAMABAD: Pakistan’s hopes of securing higher credit ratings hinge on whether this week’s election produces a government that can push through tough reforms and secure more financing from the International Monetary Fund, S&P Global Ratings said.
The South Asian nation, which has a CCC+ rating, one notch below the B category and indicating vulnerability to default, is facing a balance of payments crisis as its foreign exchange reserves dwindle and its current account deficit widens.
S&P said a government with popular support and that can work with key institutions such as the military and the judiciary would have a better chance of implementing policies to improve investor confidence and bring down inflation, which came at 28 percent in January.
“Together with new policy moves to improve investor confidence and bring down inflation, this could lift fiscal and external metrics sufficiently for the sovereign ratings to move to the ‘B’ rating category,” S&P analysts including Kim Eng Tan wrote in a report.
Pakistan’s elections on Thursday come at a crucial time as the nation’s $3 billion IMF bailout is set to end in March, putting pressure on the new government to quickly secure another round of financing to avert a sovereign default.
Political instability has also been weighing on Pakistan since former prime minister Imran Khan is barred from participating in the elections and has been convicted in three cases in the past week. While others in the fray include Pakistan’s People’s Paaty leader Bilawal Bhutto Zardari and sugar magnate Jahangir Tareen, Khan’s rival and three-time prime minister Nawaz Sharif has been gaining ground.
Pakistan has been struggling with a heavy debt load that has led to another bailout by the International Monetary Fund, the 23rd since independence in 1947. It has also relied on financial support from allies such as China, Saudi Arabia and the United Arab Emirates.
The latest IMF program expires in March, meaning the winner of the election will probably have to negotiate with the lender for more funds and push through fiscal reforms including broadening the tax base.
The country of 241 million requires considerable political and economic reform to remedy the structural nature of its fiscal debts, Gallup’s Hashim Pasha and Benedict Vigers said in a recent report.
“For whoever wins the election, reform will be difficult without a popular mandate,” they said.
The public mood in Pakistan is equally glum when it comes to politics in the nuclear-armed country.
Seven out of 10 Pakistanis aren’t confident that their elections are fair – a reflection of the simmering discontent over the ouster of Khan, who still enjoys a loyal fan base.
A Gallup poll released on last week showed that 70 percent of Pakistanis said the economic situation around them is getting worse, the highest level in the 18 years that Gallup has been polling them. Almost half said it was hard to get by on their present income.
The poll also showed that Sharif’s party, the Pakistan Muslim League-Nawaz (PML-N), has a slight edge over Khan’s Pakistan Tehreek-e-Insaf (PTI) and Zardari’s Pakistan People’s Party (PPP) in terms of voter preference.
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