A credit negative!
Perhaps Moody’s warning, that the fuel crisis is now weighing on the country’s credit worthiness, might impress the gravity of the present crisis upon the government. And it’s not political agitation, increased demand, beggars disrupting the supply mechanism or even some conspiracy against the government, it’s the inability to implement key structural reforms. The manner of the fuel crisis, and the government’s response, is now causing unease among donors. IMF has not been happy lately, and should Moody’s worries materialise, there’ll be some financial faucets running dry just when the fiscal balance is becoming difficult to handle.
Hopefully – contrary to government practice – someone will take heed from this caution. So far, the petroleum minister refused to take responsibility for the petrol crisis, the power minister distanced himself from the power breakdown and the finance minister would have nothing to do with PSO’s credit crisis. If the matter of the rating, too, comes down to the prime minister ordering two commissions and a 48-hour inquiry, the economy is going to get worse before it can get any better. Much of our funding is subject to reforms. And if some of it is rolled back, there will be another liquidity crisis pretty soon.
At the heart of the matter, and hence Moody’s concerns, is the circular debt problem. The government still does not understand what rating agencies, at least, do. Simply increasing energy imports without untangling the debt “will further strain Pakistan’s budget and balance of payments, a credit negative”. Not surprisingly, it mentions that solving energy and raising taxes were key campaign promises. The latter is relevant because should funding shrink, the country does not have a resource base in the form of adequate tax receipts. So the Sharif government does not seem to realise how it is sleepwalking into an economic crunch, and blundering from crisis to crisis. The Fund and its friends are taking notice, which will have consequences. Hopefully the government will get its act together before the people have had it too.