KARACHI: Moody’s upgradation of Pakistan’s outlook from negative to stable is the recognition of tough decisions taken by the policymakers including the steep devaluation of exchange rate, said Governor Reza Baqir in a press release issued by the State Bank on Tuesday.

Moody’s – international credit rating agency – raised the outlook on Pakistan’s credit rating from negative to stable on Monday.The ratings firm said improvements in the balance of payments is a primary driver of the rating action, but added that foreign exchange buffers will still take time to rebuild.

“Moody’s expects Pakistan’s current account deficit to continue narrowing in the current and next fiscal year (ending June of each year), averaging around 2.2 per cent of GDP, from more than 6pc in FY18 (the year ending June 2018) and around 5pc in FY19,” the rating agency said in its accompanying note.

Commenting on the increase in the stock market, he said the rally is a reflection of the improving market sentiment and a growing reflection that the country’s finances are on a sustainable footing.

“These steps have made our exports competitive, curbed expensive imports and given an incentive to domestic industries to compete with imports,” said the governor adding that it resulted in a sustained improvement in the current account which has been the key driver of the increase in SBP’s reserves net of liabilities.

The current account deficit recorded its first surplus in four years in the month of October. Foreign exchange reserves also stopped declining in recent months, registering their first increase in nearly three years. The developments have given heart to the government’s economic team that the critical deficits that were responsible for the economy’s slide have finally been arrested and reversed.

Baqir said that while such market developments are welcome, it is critical to ensure that the emerging financial improvements are translated into real gains for the middle and lower income classes.

“These sections of the society have borne the bulk of the burden of adjustments from higher income taxes deducted at source for salaried workers, higher indirect taxes, and higher inflation.” The governor said the rising inflation has partly been a result of restoring exchange rate competitiveness, increase administered prices to reduce fiscal deficits in the public sector, and unforeseen food supply disruptions.

The structural constraints on private investment, as reflected in ease-of-doing business indicators, have to be addressed further to stimulate private job creation and eventually raise incomes, he added.

“It is equally important to address food supply disruptions and curtail hoarding in food markets to bring down prices,” said the governor.

Published in Dawn, December 4th, 2019