KARACHI: Credit rating agency Moody’s said on Monday that Pakistan’s B3 rating is supported by its strong growth performance, but serious challenges like high general government debt burden, weak physical and social infrastructure, fragile external payments position and high political risk remain.

It said the government’s narrow revenue base weighs on debt affordability. The level of external public debt poses a moderate degree of credit risk, although a large share of government financing comes from domestic sources and system-wide external public debt is declining.

Meanwhile, exports and remittance inflows have slowed and capital goods imports have risen, resulting in renewed pressure on the external account.

“The stable outlook represents balanced upside and downside risks to the sovereign credit profile. Support from multilateral and bilateral lenders has bolstered Pakistan’s foreign currency reserves and fostered progress on economic reforms,” said the report.

The report said the implementation of the China-Pakistan Economic Corridor (CPEC) has the potential to transform the economy by relieving infrastructure bottlenecks and stimulating both foreign and domestic investment. “However, headwinds to further fiscal consolidation and renewed pressure on the external account present downside risks to the rating,” said the report.

Upward triggers to the rating would stem from sustained progress in structural reforms that would significantly reduce infrastructure impediments and supply-side bottlenecks. This would improve Pakistan’s investment environment and eventually aid a shift to a sustained higher growth trajectory, it added.

A fundamental strengthening in the external liquidity position and meaningful reduction in the government deficit and debt burden would also be credit positive, said the report.

“Conversely, we would view a stalling of the government’s post-IMF programme economic reform agenda, material widening of the fiscal deficit, a deterioration in the external payments position, withdrawal of multilateral and bilateral support or a more unstable political environment as credit negative,” said the report.

Published in Dawn, May 9th, 2017