FINANCE Minister Muhammad Aurangzeb’s recent discussions with the executives of the two top global credit rating agencies, Fitch and Moody’s, are aimed at persuading them to upgrade Pakistan’s present junk or speculative sovereign ratings. The virtual meetings can be linked to his visit to Washington in April for the World Bank Group’s spring meetings as Islamabad scrambles to find a way to re-enter the global bond markets for raising fresh debt to meet its foreign financing requirements and shore up its international reserves. The minister has often talked of plans to tap the bond markets, starting with the launch of the first Panda bond to buy $300m debt from Chinese investors. The government expects that the new IMF deal, improving economic fundamentals, and a raft of ‘fiscal reforms’ introduced in the new budget will convince the credit rating agencies’ to upgrade Pakistan’s ratings to help boost global investor confidence in the country’s ability to meet its debt payment obligations on time.

Even though the two agencies appear more optimistic about Pakistan’s growth prospects and improvements in its external account because of IMF support, they remain worried about political instability weakening the government’s ability to implement the tough reforms, thus upending the recent fragile economic recovery. Moody’s, for example, says that the harsh “upfront conditions” might demand more muscle than an electorally weak government can show to execute the promised reforms effectively. Similar views have been expressed by Fitch in its new report. Terming the continuing political instability the biggest threat to the economy, it fears that the PML-N-led government may not last beyond 18 months. The Fitch and Moody’s representatives, according to reports, did not broach this issue during their interactions with the minister but these concerns must have been at the back of their mind. Their decision to upgrade Pakistan’s current ratings will largely depend on how the political situation unfolds in the coming weeks.

Published in Dawn, July 25th, 2024