Timely polls, effective new govt key to Pakistan’s creditworthiness: S&P

Timely parliamentary elections and a stable and credible government are crucial for Pakistan to obtain fresh external funding and address its dwindling foreign exchange reserves.
That’s according to a report, titled “Successful Elections Are Crucial as Pakistan’s Balance Of Payments Pressures Mount,” that Standard & Poor’s Ratings Services published here on Thursday.
“Little likely improvement in Pakistan’s trade and capital flows, and the lack of alternative sources of bilateral or multilateral funding make it imperative for the country to secure fresh International Monetary Fund (IMF) funding to shore up its reserves and boost donor and investor confidence,” said Standard & Poor’s credit analyst Agost Benard. Securing access to renewed external funding is likely only after a new government takes office following parliamentary elections scheduled for May 11, 2013. It will also require credible plans to correct Pakistan’s unsustainable fiscal and economic policies. The post election honeymoon period should allow the new government to take unpopular decisions that a new IMF loan would certainly entail, Mr. Benard said. As with the previous IMF program, fiscal adjustments in the form of subsidy cuts or tax increases are likely to be key demands for the deal. But any new coalition will find these hard to implement because of popular opposition.
In our base-case scenario, we expect a new coalition government to be formed in June and a new IMF arrangement to be in place in July or August. This would help stabilize the sovereign ratings on Pakistan (B-/Stable/B) at the current level. The ratings could come under downward pressure if the formation of the new government or signing the IMF deal is delayed.