Political Fighting Ruining Pakistan’s Economy

 

A new report from Moody’s Investor Service identifies political fighting and attempts to destabilize the democratic government as the key causes of Pakistan’s economic problems. Moody’s released an updated sovereign rating for Pakistan of B3 which is “quite low” in large part because of political uncertainty. The best solution according to the international economic firm is for opposition parties to allow the democratic government to do its job.

KARACHI: Political wrangling in Pakistan is hampering the government’s ability to focus on economic issues but poses no immediate risk to its sovereign ratings, Moody’s Investors Service said on Wednesday.

Moody’s has a B3 sovereign rating for Pakistan with a stable outlook.

“The government is constrained in its focus on long-term economic issues,” Aninda Mitra, Moody’s sovereign analyst for Pakistan, told Reuters in a telephone interview from Singapore.

“Its political position and legitimacy is constantly being questioned by various quarters, including state institutions as well as opposition political parties, and there is a somewhat tense relationship with the armed forces as well,” said Mitra.

“So all this exhausts the government’s political management capabilities, and limits the government’s focus on major economic issues.”

The government of President Asif Ali Zardari is under pressure from a hostile judiciary, sections of the media and the opposition led by former prime minister Nawaz Sharif.

On Wednesday, a lawyer for the top anti-corruption agency told the Supreme Court that Pakistan was asking Switzerland to reopen corruption cases against Zardari.

A top government official was detained on Tuesday on the orders of the Supreme Court, the first official to face legal action over revived corruption charges after a 2007 amnesty was thrown out in December.

The detention of Ahmed Riaz Sheikh, director general of the country’s top police investigation agency could intensify a destabilising face-off between the judiciary and the government.

“What we would like to see from sovereign credit standpoint is predictability on the political front which provides space to the government to address these economic issues,” said Mitra.

“But the absence of this is already incorporated into the current sovereign rating for Pakistan, so recent developments do not necessarily have a ratings impact as such.”

PROBLEMS INCORPORATED IN RATINGS

Mitra also said that Pakistan’s weak fiscal situation was not a “significant surprise” and was a result of a slow economic recovery, particularly in the large-scale manufacturing sector.

The central bank raised on Monday its fiscal deficit forecast for the 2009/10 (July-June) fiscal year to between 5.0 per cent and 5.5 per cent of gross domestic product (GDP).

The central bank maintained its GDP growth forecast for this fiscal year at between 2.5 per cent and 3.5 per cent.

Pakistan clinched an emergency loan package of $7.6 billion with the International Monetary Fund in November 2008 to avert a balance of payments crisis and the Fund is likely to approve disbursement of the delayed fifth tranche next month.

Mitra also singled out governance issues as a problem, such as accumulated debt by power utilities to Pakistan State Oil which, in turn, has trouble financing oil imports and paying refiners.

“So, it is a sort of a setback, but these are currently encapsulated in the sovereign rating, which at B3 is already quite low,” he said.

There was no likelihood of a ratings downgrade soon, he said.

“In fact, if there are some improvements in these binding constraints, one could actually start thinking about improvements in the sovereign credit rating at some point,” he said.

“But for this to happen, there needs to be a sustained focus on long-term economic issues.”

Leave a Reply

Your email address will not be published. Required fields are marked *