February 4, 2022 (MLN): Moody’s Investor Service, in its latest report issued today, projected the current-account deficit will widen to 3.0%-3.5% of GDP in the fiscal year 2022 (ending June 2022).
The IMF disbursement will partially offset pressures on foreign exchange reserves while facilitating further financing from other official sources, Moody’s said.
Moody’s acknowledged Pakistan’s reform progress and termed International Monetary Fund’s (IMF) successful disbursement as credit positive.
Thereafter, Moody’s expect a moderation in global oil and commodity prices to contain growth in the import bill, while the ongoing global economic recovery supports exports and remittance inflows. As a result, the current-account deficit will narrow and stabilize at 2%-3% of GDP through the subsequent two-to-three-year period.
The report further stated that beyond reserves, the completion of the IMF's review and successful disbursement reflect recent gains and prospective improvements in Pakistan's institutions and governance strength.
Under the review, the IMF acknowledged the greater credibility of Pakistan's macroeconomic and fiscal management.
More orthodox monetary policy has complemented the country’s recent efforts to shore up fiscal finances, including several amendments to the existing tax regime under the Finance (Supplementary) Bill 2021, the report added.
As per Moody’s the strengthening of central bank autonomy through the State Bank of Pakistan (SBP) Amendment Bill 2021 will add credibility to the SBP's ability to target inflation and restrain direct financing of government debt. Further traction on tax reforms will likely drive a gradual increase in revenue with a concomitant improvement in debt affordability.
Nevertheless, the IMF also noted the need for further structural reforms, particularly in the energy and state-owned enterprise sectors, to foster a business environment conducive to investments and private sector development. Sustained progress in these areas will not only raise economic productivity and competitiveness, but also reduce contingent liability risks to the sovereign, the report said.
Moody’s believe Pakistan remains committed to advancing other reforms under the IMF programme, likely unlocking further disbursements.
However, beyond the expiry of the programme in September 2022, the government's ability to sustain reform momentum, particularly reforms aimed at further broadening its revenue base, or to commit to an immediate successor programme is uncertain given elections are scheduled to take place by late 2023, it further added.
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