No-confidence motion may hit Pakistan’s credit rating: Moody’s

No-confidence motion may hit Pakistan’s credit rating: Moody’s

No-confidence motion may hit Pakistan’s credit rating: Moody’s

KARACHI: Moody’s has raised concern over the political uncertainty in Pakistan, saying the no-confidence motion will affect the country’s credit rating of ‘B3 stable’ negatively.

The opposition parties in Pakistan tabled a no-confidence motion in the parliament, accusing Prime Minister Imran Khan of mismanaging the economy, and claimed that the ruling coalition no longer has a parliamentary majority, Moody’s said on Thursday.

“We view the no-confidence motion as credit negative because it raises significant uncertainty over policy continuity, as well as the government’s ability to continue to implement reforms to increase productivity growth and secure external financing, including from the International Monetary Fund (IMF),” Moody’s said.

Pakistan Tehreek-e-Insaf party officially controls 155 seats out of 342 in the National Assembly, and has a majority of 179 once allied regional parties are included. However, reported defections have put that majority in doubt.

The motion comes at a time when Pakistan is encumbered with surging inflation and widening current account deficit (CAD) amid rising global commodity prices.


A further deterioration in the country’s external position, including a significant widening of the CAD and an erosion of foreign-exchange reserves, would threaten the government’s external repayment capacity and heighten liquidity risks.

Pakistan has faced significant pressure on its foreign-exchange reserves in recent months, amid elevated global commodity prices and a recovery in domestic demand.

The Russia-Ukraine conflict, which has driven up global commodity prices, has amplified pressure on its external position. The country is a net oil importer, with petroleum and related products accounting for about 20 per cent of total imports.

Pakistan’s CAD amounted to more than $12 billion between July 2021 and February 2022, a stark contrast to a $1 billion surplus in the same period a year earlier.

“We now expect the deficit to widen to 5 to 6 per cent of GDP in the fiscal 2022, compared with our previous forecast of 4 per cent. This further widening will put greater pressure on Pakistan’s foreign reserves, which declined to $14.9 billion as of February 2022, from $18.9 billion in July 2021, according to IMF data, sufficient to cover only around two months of imports.”

Securing external financing, including from the IMF, will be key for Pakistan to continue to meet its external obligations given the pressures on its foreign-exchange reserves.


However, the no-confidence motion raises significant uncertainty over the government’s capacity to commit to implementing reforms, particularly those aimed at broadening the revenue base.

Moody’s said that Pakistan’s approach towards the IMF programme from this point is uncertain, and its participation could be in doubt.

The country is undergoing its seventh review under the IMF’s Extended Fund Facility programme, which has disbursed $3 billion out of the stipulated $6 billion to date.

However, discussions between Pakistan and the IMF appear to have stalled since early March, with the IMF expressing concerns over the government’s recent relief package in response to rising inflation, including subsidies on fuel and electricity prices, as well as a tax amnesty for specified sectors.

Regardless of the outcome of the no-confidence vote, the ruling party will find it difficult to balance advancing revenue-raising reforms to secure external financing and political pressure from voters facing rising living costs.

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