External Vulnerability and Narrow Tax Base will be Key Challenges for Pakistan's New Government: Moody's

According to Moody’s, a renowned international credit rating agency, among the chief credit challenges to come on the forefront of the new government’s agenda will be Pakistan’s heightened external vulnerability.

While external vulnerability would remain the most pressing agenda initially, in the long run, the government will have to tackle other important credit challenges that can not be ignored any longer.

These credit challenges include the country’s extremely low global competitiveness, institutional weaknesses relating to governance, rule of law and order, control of corruption, and last but not the least; a narrow tax base. The narrowness of the country’s tax base will remain a key challenge for the new government, Moody’s added.

PTI chairman Imran Khan has been long claiming his priority towards widening that tax base and its election pledges include, among other things, increasing social spending, reducing taxes to improve ease of doing business in the country as part of its tax reform plans, and lowering energy costs.

Possible policy options that could be expected of the new government to tackle the most imperative challenges could include both fiscal and monetary policy tightening, says the rating agency.

Consequently, the rating agency expects further exchange rate depreciation to come about, as the country would likely have to turn to the International Monetary Fund to help the nation with its pressing external financing needs.

Improvements in power supply and infrastructure on the other hand are likely to come about from the ongoing implementation of the China-Pakistan Economic Corridor, while measures to improve governance and reduce corruption will be challenging for any new government to implement.