ANOTHER week, another feather. In an upward revision of its outlook for Pakistan’s credit rating, Moody’s has served up a hat trick for the government. This is the third bullish assessment of Pakistan’s economy by a significant institutional player, with the other two coming from the International Monetary Fund and the State Bank over the past two weeks. But once more, a close reading of the text of Moody’s announcement shows that the improvement is little more than skin-deep, and like the other two institutional bodies, the rating agency also says its decision to raise the outlook to stable from negative is “primarily based on a stabilisation in the country’s external liquidity position”. In addition, the government’s record of implementation of reforms under an IMF programme gets a nod, as well as a hint that continuing down the path of reform is critical to maintaining the strong reserve buffers built up thus far.

Celebrations, however, must be short. The announcement carries sobering language describing the challenges that lie ahead. Moody’s speaks of Pakistan’s “structurally large fiscal imbalances and weak debt metrics” relative to other countries with similar credit ratings. It also speaks of the state’s “‘Very Low’ institutional strength” and “implementation risks associated with economic reforms” as well as the “high susceptibility to event risk”, given a volatile political environment and often stormy relations with international donors. Most significantly, however, the improvement in the rating outlook appears to be driven by skin-deep developments, measured by “the adequacy of reserves with respect to maturing external debt obligations over the next year”. Pakistan’s last downgrade, in 2012, occurred when reserves were falling fast and large debt service obligations loomed in the year ahead. That situation has now reversed itself, with the country over the hump of the large outflows that were darkening its outlook in the closing months of the previous government.

This improvement in the external situation lies at the heart of the favourable reviews served up by the IMF, the State Bank and Moody’s. But each one of them has warned that there is little room for complacency, since the underlying imbalances remain, and the situation can turn very quickly if not backed up by reforms. Even more importantly, it’s worth remembering that each of these institutions speaks to its own audience. For the Fund, the key audience is its creditor countries on the board. For the State Bank, the audience is the government itself, as well as domestic investors. Moody’s audience is foreign bond holders. The question therefore arises: what do the biggest stakeholders in Pakistan’s economy — the mass of ordinary citizenry — think of the government’s performance thus far?  Now that the government has collected its accolades and acquired for itself some breathing room, it’s fair to say that there is no excuse left for failure to deliver.

Published in Dawn, July 16th , 2014