What’s common between Moody’s and a stereotypical spouse?
Moody’s Investors Service has all the characteristics of a nagging spouse: nosy, judgmental, disapproving, inquiring, and “always right”. Not only that, it judges you by your financial condition, reviews your creditworthiness over and over again, is hypercritical about your looks, scrutinises your engagements with your friends, questions your relationships and does not give a flying camel about anyone else’s opinion. And if the recent chain of events is anything to go by it can also conjure up mood swings that can give would-be mothers a veritable run for their money.
Moody’s – one of the holy trinity of international rating agencies along with Standard & Poor’s and Fitch Group– recently decided to downgrade Pakistan’s sovereign credit rating a notch to Caa1 from the previous rating of B3. And if one were to view the whole episode from politico-fiscal glasses there could only be one logical reason behind the decision: Moody’s is a snob. The fact is vindicated by the company’s recent warning to Germany – by far the strongest economy in the eurozone – of a potential downgrade in its perfect AAA rating in a classic “Was ist das?” moment. Furthermore, a multitude of global banks– five of them from our neck of the woods – have had their ratings slashed as economists try to understand the reason behind this barrage of unwarranted mood swings.
On the European front, with Netherlands and Luxemburg joining Deutschland under the company’s scrutiny gun, the rationale obviously is Greece’s possible exit from the monetary union, and its potential ramifications for the rest of the eurozone. The fact that European financial markets remained largely unaffected in the immediate aftermath of the announcement – even the German DAX in Frankfurt didn’t exactly take a nosedive, with the nation’s 10-year bonds rising – shows that no one with half a brain, or any fiscal interest, paid much heed to Moody’s moodiness. If not anything else the ‘warning’ might have given Frau Merkel and Herr Roesler a good laugh, as the duo continues to mull over anchoring eurozone economies and orchestrating a happy ending to the Greek tragedy. Nonetheless, it is Moody’s snobbery on the Pakistani front that is rather perplexing and makes about as much sense as firing an employee for something they did a decade ago.
The current Caa1, with a negative outlook is the lowest rating that Pakistan has had since 23rd November 1999; the strongest being B1 in 2006, when the fiscal picture was somewhat bright and colourful. However, since Pakistan had a B2/B3 rating back in 2008 when the sword of default hung over the national economy, one would definitely question Moody’s decision of downgrading Pakistan in evidently better economic outlook; especially after the Pak-US relationship has returned to something bordering on stability, with the possibility of PPM (Post-Programme Monitoring) also being discussed with the IMF. Not only that, economic indicators like the external debt to GDP, twin deficits, import cover, et al are all in considerably better shape when juxtaposed with 2008.
Moody’s, nevertheless, launched a four-pronged inquest into Pakistan’s rating, citing the balance of payment deterioration, pedestrian export growth, plummeting FDI (Foreign Direct Investment) and rising imports – the latter despite the fact that the import cover in 2012 is five weeks better than it was in 2008. This latest mood swing might not be completely irrational, and one could dig up quite a few reasons for scepticism, but the ‘standard’ viewpoint shows that with regards to the timing at least, Moody’s decision-making was ‘poorly’ executed – both puns indeed intended.
Standard & Poor’s begs to differ with Moody’s decision. For, despite having the same data that Moody’s had had for its analysis, S&P maintained a B- rating, along with a ‘stable outlook’ cherry on this not-so-scrumptious cake. Therefore, what the whole episode boils down to is that the same data and gauging devices resulted in one company asserting that there was no reason to ‘be negative’ and the other asserting quite the contrary – with the only things missing from Moody’s announcement being unnecessary eye rolling and an exaggerated flick of the hair.
With a budget deficit touching 8.5 percent of GDP, and a record breaking Rs 1268 billion loans from the banking system, in 2011-12 there is no denying that Pakistan’s economic outlook personifies risk and irresponsibility. Also, economic growth is at its lowest for the past 60 years and double-digit inflation has now prevailed for over half a decade. The signs are indeed ominous. But then again when your wife throws a “you’re-not-the-same-anymore” tantrum citing the fact that you didn’t go grocery shopping with her a couple of months back, it’s obvious that the thought process isn’t quite coherent; even though you might not be the best husband in the world.
The writer is a staff member and can be reached at khulduneshahid@gmail.com