THE country’s external account and fiscal balance may be improving according to the government, but for reasons larger than this its credit rating has been left unchanged at B negative, near junk levels. The announcement came amid no fanfare from Fitch Ratings, one of the world’s leading credit rating agencies, which cited high inflation, rising fiscal deficit and slow growth among the reasons for its decision. If the economic situation is indeed improving as the government enjoys telling us at every opportunity, why are the rating agencies unable to see this or acknowledge it in their ratings? The answer is simple. Whatever improvement we see is not only shallow but also built on unsustainable foundations. Taxes have been squeezed out of an already exhausted and heavily burdened population by raising the price and sales tax on fuel and power, while the external sector deficit has been narrowed by choking the economy to the point where growth forecasts are now just above 2pc though the government has programmed 4pc in its budget.

The unchanged ratings are the latest evidence that the real work of rectifying the imbalances has not even started. Most of the measures required to put all this on a sustainable footing have not yet begun to be implemented. At some point, the macroeconomic adjustment under way to bridge the deficits will need to end and the policy framework move towards promoting growth. If the right reforms have not been implemented, the buffers that are being built on the fiscal and external side through this painful period will dissipate very quickly. We know this because every other government has left behind the same story. This time it must be different, first because we owe it to ourselves to break this cycle once and for all, and second, because this government came to power on the promise of change. The unchanged rating tells us that the successes they are touting at the moment may not be as deep as they would like us to believe.

Published in Dawn, January 15th, 2020