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India Today
4 days ago
- Business
- India Today
Moody's upgrades Pakistan credit rating, but flags ‘fragile' external position
Moody's Ratings on Wednesday, August 13, upgraded Pakistan's credit rating to 'Caa1' from 'Caa2', indicating an improvement in the country's financial situation. The ratings agency also revised the outlook for the Government of Pakistan to stable from Government of Pakistan's local and foreign currency issuer and senior unsecured debt ratings have been upgraded to Caa1 from Caa2, Under Moody's long-term obligation rating system, a 'Caa' rating suggests poor standing and very high credit risk, while the numeric identifier reflects the higher end of its upgrade to Caa1 reflects Pakistan's improving external position, supported by its progress in reform implementation under the International Monetary Fund (IMF) Extended Fund Facility (EFF) program,' Moody's said. The move follows similar upgrades by Fitch Ratings and S&P Global in recent days. Moody's noted that Pakistan's foreign exchange reserves are likely to keep improving, although the country will remain dependent on timely financing from official agency said the stable outlook 'reflects balanced risks to Pakistan's credit profile.' On the upside, it noted that 'improvements in the debt service burden and external profile could be more rapid than we currently expect.'However, it warned of 'risks of delays in reform implementation required to secure timely official financing, which would in turn weaken Pakistan's external position again.'Moody's highlighted that Pakistan's external position has strengthened over the past year and is expected to see 'further gradual improvements' as IMF-led reforms support financing from bilateral and multilateral partners. The agency said this will help boost foreign exchange said that Pakistan met its external debt obligations and added to its reserves in FY2025, and is expected to do so for the next few years, contingent on 'steady progress on reform implementation and timely completion of IMF reviews.'The agency cited Pakistan's access to new financing sources, including a 28-month IMF Resilience and Sustainability Facility worth about $1.4 billion and a ten-year World Bank country partnership framework for FY2026-2035 with an indicative financing envelope of $20 the upgrade, Moody's warned that Pakistan's external position remains fragile, with reserves still well below what is required to meet obligations. 'We estimate Pakistan's external financing needs are about $24-25 billion in FY2026, and similar amounts again in FY2027,' it agency cautioned that any slippage in reform implementation or withdrawal of financing support could lead to 'renewed material deterioration in the sovereign's external position.' It also noted that several previous IMF programs were not completed, citing weak governance, institutional challenges, and a difficult domestic political environment.- EndsMust Watch IN THIS STORY#Pakistan
Business Recorder
13-06-2025
- Business
- Business Recorder
Inflation slowdown: relief or a temporary pause?
Inflation in Pakistan has plunged from 28.3 percent in January 2024 to 2.4 percent in January, 2025 year-on-year, presenting a dramatic shift from a record high of 38 percent in May 2023. This drop offers a respite to millions who have struggled to sustain their livelihoods with this high inflation rate. Is this relief a sustainable or a temporary pause before structural cracks re-emerge? The State Bank of Pakistan's (SBP's) report, in its latest assessment, suggests this slowdown appears a fragile win, driven by short-term factors rather than deep structural reforms. The inflation slowdown presents a complex story. The Consumer Price Index (CPI) basket, which tracks price changes, is primarily composed of food and non-food items. Food inflation, which spiked to 38.5 percent in August 2023, has now decreased to 1.8 percent percent. Several factors explain this dramatic decline including favourable weather conditions, global decline in commodity prices, and government intervention in controlling prices of essential food items, particularly staples. In addition, the non-food component of inflation, particularly energy prices, a key contributor to the CPI basket, has also declined. A global decline in oil prices has contributed to lower energy prices, helping to ease the inflationary pressure. Core inflation (Non-Food Non-Energy) has also declined, necessitating monetary easing. Between 2022 and mid of 2023, the SBP raised its policy rate to a record 22% - a very tight stance. This discouraged borrowing and cooled consumption, reducing inflation to 11.2 percent in May 2024 from 38.5 percent during May 2023. Apart from the above short-term macroeconomic indicators, the IMF-led reforms under the USD 7 billion Extended Fund Facility (EFF), which was agreed upon in July 2024, also seem to have played a significant role in this slowdown. One significant measure was returning to a market-determined exchange rate, which, after an initial depreciation in rupee, stabilised during the last quarter of 2023, reducing high import cost-induced inflationary pressure. Another significant reform was the aligning of energy tariffs with energy cost, minimising subsidies that had previously been draining fiscal space. These measures together allowed for better resource allocation and eased price pressures over time. Most importantly, the key statistical factor at play is the base effect. Inflation is measured year-on-year, meaning current prices are compared to those in the same month during the previous year. The astronomical price hikes during the last two years, fuelled by global commodity prices hikes and local missteps, are creating an illusion of disinflation. Therefore, even a modest increase in prices in 2024 can appear as a sharp disinflation in statistical terms. This does not imply that the prices are falling; rather, they are rising at a slower pace than an already elevated high baseline of 38 percent in 2023 and 11.3 percent in 2024. Take, for instance, the striking decrease in inflation to 1.5 percent in February 2025, which reflects not only improved macroeconomic management but also a statistical quirk. Imagine a dozen eggs jumping from PKR 100 to PKR 200 last year; an increase to PKR 210 would now seem like a bargain by comparison. So, is this relief or a temporary pause? If we turn to data and evidence, then it would be a temporary respite. The IMF's push for fiscal consolidation and energy reforms has eased the inflationary pressures, alongside factors like oil prices and base effects. However, the analysts caution that this slowdown rests on shaky ground — external loans and decline in import costs, not real economic growth. For now, Pakistanis may breathe easier, but the spectre of inflation's return looms large unless bold, homegrown reforms take root. The government policies now will shape the future inflation trajectory. Take, for example, the global decline in oil prices. If the government passes the savings on to consumers by reducing domestic oil prices, it would deepen the deflationary momentum, offering businesses and households some relief. However, if it chooses to raise the petroleum levy — as recently announced - it may reverse the current deflationary momentum. Moreover, the decline in food prices also poses future challenges. Lower profits may discourage farmers from cultivating certain crops, potentially reducing supply and causing a resurgence of cost-push inflation in future food prices. For example, as reported by the Food and Agriculture Organisation (FAO), wheat cultivation area is expected to shrink post government removal of support price since May 2024. Cotton production is also projected to fall to 5.2 million bales in 2024-25, from 7.5 million, jeopardizing textile exports. In conclusion, without meaningful structural reforms, any relief from inflation will be fleeting. Not to forget the sobering part — analysts warn that inflation may rise again as the base-year effect fades. Copyright Business Recorder, 2025
Business Recorder
07-06-2025
- Business
- Business Recorder
PSDP allocations
EDITORIAL: On 18 May 2025, Prime Minister Shehbaz Sharif constituted a committee to finalise next year's federal Public Sector Development Programme (PSDP) after the ministries formally requested 2.8 trillion rupees for ongoing and new projects while the Planning, Development and Special Initiatives Ministry cognizant of the limited fiscal space requested 1.5 trillion rupees. However, the Finance Ministry grappling with the International Monetary Fund (IMF) conditionalities under the ongoing programme stipulated that it could not allocate more than a trillion rupees for next fiscal year — a proposed amount that is 400 billion rupees lower than what was budgeted in the ongoing fiscal year. It was reported that the Prime Minister directed the finance ministry to increase the allocation though it is unclear whether the IMF would insist on capping it at one trillion rupees. While chairing the Annual Plan Coordination Committee, Ahsan Iqbal, the federal minister for Planning, Development and Special Initiatives, acknowledged that the government is constrained not to increase PSDP next fiscal year in view of the fiscal discipline agreed with the IMF. The meeting was informed that as of 31 May 2025 federal budgeted PSDP had been reduced to 1.1 trillion rupees (or by 300 billion rupees) with 1.036 trillion rupees authorised though only 596 billion rupees had been utilised. The low utilisation rate not only reflects non-release of funds due to fiscal constraints but also to the low absorption rate of our ministries. Thus the actual utilisation amount for the current year indicates that during the first 11 months of the year the shortfall from what was budgeted was a whopping 806 billion rupees, which is not unusual as administration after administration has budgeted an unrealistic amount for PSDP, citing it as indicative of its focus on the people of the country while mercilessly slashing it at the end of the fiscal year to ensure that the budget deficit is sustainable. The PSDP shortfall is one of the highest in recent history; however, this can be explained by the fact that the state of the economy remains fragile notwithstanding the stability achieved with support from the IMF-led multilaterals and the three friendly countries — China, Saudi Arabia and the United Arab Emirates. And this was the focus of Iqbal who reportedly stated that 'we are not just managing a budget — we are shaping the future. The world may see limitations but we see opportunities…together let us rise and lead Pakistan towards sustainable development, economic dignity and national pride' — sentiments that no doubt resonate with the general public full of pride subsequent to the defence forces exemplary performance after India's unprovoked attack on our soil. It is important to note that Pakistani administrations in general and the PML-N governments in particular have emphasised investment in physical infrastructure, which is tangible and therefore considered to generate political support as opposed to social infrastructure, which takes more than a decade to show positive results on the economy. One would, therefore, urge the government to review the reasons behind the China's meteoric rise as an economic superpower with one being the rise in literacy rates. Today the US literacy rate is reported at 79 percent (with 54 percent of Americans only being able to read at grade 6 level) with China registering an impressive 99 percent — a factor that accounts for the Chinese outpacing the US in technological advances (an example being the breakthrough made by the Chinese company DeepSeek, an Artificial Intelligence development firm providing the service at an infinitesimal fraction of the cost of US companies in the field). The country needs long-term investment in social sectors in general and education in particular to ensure long-term sustainable growth and a resilient economy. Copyright Business Recorder, 2025
Express Tribune
11-05-2025
- Business
- Express Tribune
Ensuring economic, national security
It's unjust that honest industrialists and salaried professionals bear the brunt of taxation while large sectors – retailers, agriculture, real estate, wholesalers and service providers – escape their fair share. photo: file Listen to article We are all aware of the short-term economic relief: a 60-year low inflation rate, remittances nearing $4 billion in a month, a current account surplus of nearly $1 billion and global oil prices dropping sharply from the low $80s to the $60s per barrel. We're also anticipating almost certain inflows of $2 billion from the International Monetary Fund (IMF), including climate-linked funding, a sustainable increase in the tax-to-GDP ratio — though this disproportionately burdens the formal sector — and an astronomical rise in the KSE-100 index to 120,000 points. Interest rate cuts from the peak of 22% to 10% in the coming months are widely expected. But while these indicators paint a positive picture, the real work begins now. Geopolitical flashpoints demand economic readiness Pakistan is now facing two major challenges that demand a shift in economic thinking. First is the recurrence of India-Pakistan tensions – this being the third major flashpoint in a decade after Uri in 2016, Pulwama in 2019 and now Pulwama in 2025. This period has also seen triple economic dips – in 2019 (the IMF-led stabilisation), 2020 (Covid) and 2022-23 (political instability). While Pakistan's military strength is commendable, this last decade should have been used to strengthen our economic foundations through boosting the foreign exchange reserves, increasing exports and remittances, broadening the tax base, diversifying the economy into agriculture, minerals and IT and repaying external debts consistently. Water crisis and canal development – unity over provincialism The second challenge is domestic, which is the controversy around new canals and water distribution. India's threat to suspend the Indus Waters Treaty, which underpins Pakistan's agriculture, food security and social stability, comes at a delicate time. The Green Pakistan initiative, spearheaded by the Special Investment Facilitation Council (SIFC), seeks to build six new canals – a visionary step. However, it must be clearly communicated to the public and provinces as a national priority rather than a provincial competition. Zooming in on Pakistan through Google Earth reveals the stunning economic possibilities this land offers. From snow-covered mountains that feed rivers and tourism, to the fertile Indus plain that can feed hundreds of millions globally and onto the mineral-rich western belt of Balochistan, K-P and Sindh, Pakistan is a treasure trove. These areas are not just scenic; they are strategic, waiting to be tapped intelligently for national prosperity. The canal network planned near the Cholistan Desert is a low-hanging fruit. It can irrigate millions of acres, attract foreign direct investment (FDI) and serve as a testbed for experimental agricultural techniques that can later be scaled nationally. Similarly, regions between Multan, Sialkot and DI Khan and the eastern belt of Sindh beyond Mirpurkhas, Sanghar, Pano Aqil and Khairpur, all present significant agricultural potential. By engaging global agricultural experts and deploying modern techniques, Pakistan can turn its deserts into breadbaskets. Pakistan's mineral resources are unparalleled: Thar coal, Reko Diq and the recent finds by National Resources Limited offer decades of energy security and export potential. Add to that our reserves of iron, copper, salt, limestone, rare earths, oil and gas. But exporting raw material is a missed opportunity. We need a robust exploration and value-addition policy to process and export finished products, just as Indonesia has done with palm oil and nickel. Economic equity: all provinces must win together The state must play a fatherly role by uniting provincial interests under the umbrella of national development. If Sindh fears water shortages due to canal construction, it should be assured of economic compensation through 25-50% revenue sharing from the Green Pakistan agricultural exports until the eight-million-acre-feet Bhasha Dam storage is completed. Balochistan and K-P, too, must benefit from mineral FDI, tax revenues, jobs and infrastructure, while the federal government focuses on reducing the external debt and easing the tax burden on the formal sector. It's unjust that honest industrialists and salaried professionals bear the brunt of taxation while large sectors – retailers, agriculture, real estate, wholesalers and service providers – escape their fair share. If Pakistan is to break its dependency on IMF programmes and endless bilateral rollovers, this imbalance must be addressed through consensus-based reform and enforcement. In a volatile region, national economic interest must override party or provincial lines. The next decade can only belong to Pakistan if unity and economic clarity guide our path. We must build consensus across the aisle, across provinces and across sectors to explore, dig, drill, irrigate and cultivate, just as the US did during its energy revolution. The slogan for our time should be "Prioritise Pakistan – now or never." The writer is an independent economic analyst
Arab News
08-04-2025
- Business
- Arab News
World bank approves $1.1 billion in new financing to support Jordan
AMMAN: The World Bank said on Monday it approved $1.1 billion in new financing to support Jordan's economy in the face of external shocks. The bank said the financing bolsters the country's IMF-led reforms focused on four areas that aim to accelerate growth, create jobs and invest in sustainable energy projects.
