KARACHI, Feb 25: Political uncertainties still abound and a wider process of reconciliation faces deep chasms, said Aninda Mitra, Moody’s vice- president and lead analyst, said in a statement on Monday.

The general elections being fair enough made them acceptable to all political parities and has given a hope that the political uncertainty would die with the birth of new democracy in Pakistan.

However, the delay in developing a consensus to resolve the pre-poll political issues like restoration of judiciary created doubts among investors and analysts about smooth functioning of democracy.

Pakistan has been facing tough time from the overseas analysts rating agencies quick to curtail the country’s rating.

Moody’s changed the outlook on Pakistan’s B1 sovereign bond ratings to negative in the immediate aftermath of the imposition of emergency rule in November.

The imposition of emergency proved harmful as the foreign investment started shrinking intensifying the negative impression about the country’s ability to perform smoothly.

“At that time, (when emergency imposed) we believed that the suspension of the rule of law had systemically heightened political uncertainty, making stable political outcomes unforeseeable,” said Mitra.

“Such high levels of political uncertainty and institutional opacity could affect confidence-sensitive investment flows and generally worsen macro-economic stability.”

In a recent report, the State Bank has warned that macro-economic imbalances were the threat for the stability of the economy and suggested the government for immediate corrective measures to improve the situation.

The immediate impact of fair elections was felt when the stock market reached a record high level and the rupee gained 2.4 per cent in just two days after the elections.

However, the uncertainty again tightened its hold over the market with the delay in consensus for the formation of a government in Islamabad as well as in the four provinces.

Mitra said concerns about deterioration in Pakistan’s credit fundamentals were further fueled by the shocks to economic activity, business sentiment, and reduction in foreign investment inflows that followed along with a sharp rise in inflation and widespread power cuts.The State Bank in its latest report expressed serious concern over rise in main inflation, especially food inflation but was more concerned that the non-food and non-energy inflation was on rise despite SBP’s tight grip over money flows to the market.

Moody’s analyst said that Pakistan’s recent elections may offer, but do not yet assure, an opportunity for a new coalition government to restore the rule of law, alleviate institutional rifts, and reduce regional, religious and ethnic tensions.

“The election brings with it the promise of real political improvements, especially if level of domestic violence is reduced and the government actions are afforded greater legitimacy and predictability,” said the analyst,

“This would likely improve economic activity, boost domestic business and investors’ sentiment, and restore foreign investors’ confidence and support a change in the ratings outlook to stable from negative.”

However, he said, until the two main opposition parties demonstrate an ability to restore political stability and forge an effective government, Moody’s will retain its negative outlook on Pakistan’s B1 ratings.

The Pakistan People’s Party and the Pakistan Muslim League (Nawaz) “have a history of animosity with ideological differences on several constitutional as well as socio-political issues,” said Mitra.

“The most serious credit challenge would probably arise from a synchronization of further political infighting, coupled with policy drift and worsening inflation and the fiscal fundamentals that could further worsen macro-economic as well as socio-political stability,” the analyst concludes.