KARACHI, March 25: Despite easing of political risks, credit rating of Pakistan is still at the stake as the both the fiscal and current account deficits are potential threats for the economy in the eyes of international analysts. Standard and Poor’s (S&P) issued its first comment after the swearing-in of Prime Minister Yousaf Raza Gilani sighting existence of political as well as high economic risks.
It says that the country is likely to see a budget deficit of 6 per cent as the six months’ result showed a deficit of 3.6 per cent.
The 3.6 per cent budget deficit of half year was much higher than the previous year’s 1.9 per cent while it is much close to the full year target of 4 per cent for the current fiscal year.
The budget deficit has turned into a serious threat for the country as government kept borrowing heavily to meet its spending requirement. This huge borrowing disrupted the fiscal structure and badly damaged the efforts of policy makers to curtail the main inflation.
“Stagnant revenue collection, up by just 1.8 per cent year on year, coupled with large rises in debt service and subsidy costs are largely to blame,” said S&P.
“This clearly indicates that the new government will need to take comprehensive policy action,” it added.
“The negative outlook on the sovereign credit ratings reflects our view that the balance of risks are still tilting downward, notwithstanding the relative easing of political risks,” said Mr Benard, analyst of the S&P.
“The ratings on Pakistan could be lowered if policy paralysis or the dominance of political imperatives prevents the formulation and implementation of sufficient remedial actions to arrest fiscal and external deterioration.”
The threat of lowering of the country’s rating has been looming large since the beginning of the current fiscal. Pakistani analysts believe that further decline in the country’s ratings would badly damage the country’s economic plans.
The government will have to borrow heavily from the external sources to meet the widening external account deficit. The borrowing will be costlier if the country’s rating is further declined. It will also hurt the government plans to launch Eurobond and the country will have to pay more to sell the bond.
The agency says the external balances provide additional risks, with potential negative implications for the ratings. After tentative signs of improvement, the current account deficit appears to be rising again from already high levels.
“Although financing has not been a problem given large foreign direct investment inflows, ongoing deficits of about 5 per cent of GDP against a much less favorable global environment and the government’s additional foreign borrowing plans prolong vulnerability to external shocks,” said the rating agency.
