Long way to go but Pakistan’s risk profile steadily improving
The upward trend in the sovereign’s risk-score has continued since the 2013 elections as the state taps the market for sufficient credit to close a substantial financing gap.
On its present score of 30.69 out of 100, Pakistan is now 3.7 points better off since reaching a nadir in Q3 2012, signalling that Moody’s negative watch attached to its Caa1 rating is behind the curve.
While still tethered to tier five – the lowest of ECR’s groupings containing the world’s highest-risk sovereigns – the question is whether this revival will continue sufficiently to put Pakistan on the cusp of tier four. ECR score trends tend to suggest it might.
Country-risk experts have become more confident in currency stability and the government finances during the past 12 months or so.
Scores for repatriation risk and government stability have similarly improved – the latter by 0.5 since Q4 2012 in the wake of last year’s election victory for the Pakistan Muslim League-Nawaz, which returned Nawaz Sharif to office with a strong mandate to ensure a smooth transition of civilian rule.
Most of Pakistan’s risk indicators are low-scoring (symbolizing high-risk), which is to be expected in a country still riven by instabilities, and merely highlights the numerous problems surrounding its complex political, economic and structural make-up.
However, relations with an interfering judiciary have calmed since chief justice Iftikhar Chaudhry retired in December, and the economy is showing more positive signs.
Speaking under anonymity, one of ECR’s experts notes the changes as positive, pointing to the government slowly sorting out the electricity mess, which might be the reason why manufacturing activity has improved, and a narrowing of the trade deficit with exports rising.
Inflation has stabilized lately and budget-deficit forecasts foretell improvement, not least because of IMF support and the new business-minded government bent on overriding vested interests to privatize key assets, ameliorate the financial problems weighing down the electricity sector and auction telecommunications licences now generating considerable interest.
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