Moody's : Disqualification of prime minister increases policy uncertainty

Moody's credit rating agency released a report on the implications of the disqualification of Nawaz Sharif by the Supreme Court of Pakistan. The Agency stated the disqualification of the prime minister increases policy uncertainty and is a credit negative.

In the report the credit rating agency stated “ Credit implications depend on impact on government reforms, access to external finance. We expect domestic political risk to continue to constrain Pakistan's credit profile in the near and medium term, due to both recent events and the country's long-standing history of domestic security challenges, disruptive politics and military coups. The extent to which these events detract from economic and fiscal policymaking, and reduce government effectiveness in general, will ultimately determine their impact on Pakistan's credit profile. Under Nawaz Sharif's leadership, in September 2016, Pakistan completed a three-year International Monetary Fund (IMF) Extended Fund Facility program that helped to stabilize the economy. Through its reforms, the government reduced the fiscal deficit, introduced more rigorous inflation management, and rebuilt foreign exchange reserves.

More recently, fiscal consolidation has slowed, reserves have declined anew, and external pressures have started to build.1 Continued government commitment to policies that preserve macroeconomic stability gains and advance fiscal consolidation would limit future widening of the twin deficits, supporting Pakistan's creditworthiness. Conversely, slippage from such commitments would exert negative pressure on the credit profile. In addition to the IMF program, Nawaz Sharif oversaw a major expansion of Pakistan's economic relationship with China (A1 stable) through the launch of the China-Pakistan Economic Corridor (CPEC)2 project in 2015.

The CPEC is a large package of Chinese investment projects with the potential to transform Pakistan's economy by relieving supply-side constraints to growth through investment in power-generation and transport infrastructure. If implemented as planned, CPEC would lift Pakistan's potential GDP growth significantly and catalyze higher private-sector investments and exports. However, security-related issues and Pakistan's weak track record of public project implementation suggest that the pace of execution will be relatively slow. Moving forward, continued support for the CPEC project across all branches of government will be critical to its success and full implementation.”