The recent disqualification of Prime Minister Nawaz Sharif by Supreme Court could impact the policy continuity and have an adverse impact on the credit rating, according to credit rating agency Moody’s. Pakistan’s credit profile is already embedded with high political risk and the current uncertainty in the political environment could limit the flow of external finances in the country.
The disqualification of Nawaz Sharif can lead to another political turmoil in the county as the ex-PM was on his way to be the first premier to complete 5 years in power. Pakistan now faces continuous challenges to boost investor confidence in order to get finances from creditors.
Moody last month reaffirmed Pakistan’s B3 credit rating with stable outlook due to economic reforms that started as part of the three year IMF Extended Fund Facility (EFF) program along with the launch of China Pakistan Economic Corridor in 2015. The completion of EFF during the time of Nawaz Sharif helped in stabilizing the economy.
However, even at that time, Moody had expressed its concerns regarding political instability in the country as the Panama case investigations were still going on.
Pakistan managed to increase its foreign exchange reserves, reduce the fiscal deficit through the EFF program, and introduce inflation management techniques, during the time of now former PM, Nawaz Sharif. But things will change now, as exchange reserves have decreased from $23 billion in June 2016 to $20.4 billion in July 2017, while fiscal deficit has also widened.
If the PML-N government is able to continue forward with its committed policies just like the EFF program it completed, then easy access to credit is assured due to anticipated boost in the investor confidence. But if the policies are not maintained, then availing external credit will become difficult as the credit profile will take a hit, making it difficult to get access in the external market.
Amid growing uncertainties, however, the confidence of local investors grew with selective buying on Tuesday as the stock market gained over 500 points. Shahid Khaqan Abbasi has taken over as interim PM with Shahbaz Sharif eventually taking over once he competes for the vacant NA seat of his brother.
A lot of focus has been now on CPEC as Nawaz Sharif played a crucial role in the project, but Moody’s fear that security conditions in Pakistan might hamper the expansion of the project may have some weightage to it. CPEC is already bringing in billions of dollars of investment and successful implementation can result in further investments which are vital for the country.