Ishfaq Ahmed
The international
credit rating agency Moody’s said on Monday that a new IMF loan is essential for survival of Pakistan economy which is badly affecting from prevailing political situation in the country.
According to the Moody’s report, the
order of Supreme Court of Pakistan to arrest the Prime Minister Raja Pervez
Ashraf and 15 others on charges of corruption comes in an environment of
simmering political tensions, with parliamentary elections due between March and
May. This event is credit negative for Pakistan (Caa1) because it distracts
from the formulation of economic policy and deters investors.
“This is another instance where
the three-way battle between the executive, judiciary and military arms of
government undermines Pakistan’s ability to formulate policies to address the
country’s pressing domestic economic challenges, bolster investor confidence
and attract external financial support from official creditors and donors.
Under such conditions, the possibility of gaining a timely renewal in financial
support from the International Monetary Fund (IMF) appears dim”, Moody’s said.
The 15 January judicial order,
coupled with recent anti-corruption protests by Doctor Tahirul Qadri and
tensions on the India-Pakistan border, all pose immediate threats to Pakistan’s
political stability. An arrest of Mr. Ashraf could well delay the smooth
appointment of a neutral caretaker government to oversee the upcoming election.
“The factious political situation
adds further strain to the external situation as well. Investors’ growing
concerns have been evident in losses in both the currency and capital markets.
Five-year credit default swap spreads have widened to 828 basis points,
following a spike to 935 earlier this month, from 783 at the start of this year”
said Moody’s.
The Moody’s said that the outlook
for external financing is another trouble spot. With debt repayment obligations
to the tune of $3 billion coming due at the end of June, and foreign reserves
having already fallen to $8.8 billion in January from $12.5 billion last year,
Pakistan’s external situation is already strained.23
Pakistan would benefit from a
renewed agreement with the IMF, particularly given that a Stand-By Loan
Arrangement agreed upon in November 2008 went off track before it was fully
disbursed and ultimately expired in September 2011. Following a recent IMF
visit, there may have been a possibility of Pakistan inking a new agreement
upon completion of the electoral process. Now, any delays on this front would
only add to external pressures, it said.
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