October 6, 2022 (MLN): The government on Thursday contested the Moody’s rating action on Pakistan saying that the rating action was taken without prior consultations and meetings with Ministry of Finance and State Bank of Pakistan teams, a government press release showed.
“The rating action by Moody’s is strongly contested by the Ministry of Finance as the rating action by Moody’s was carried out unilaterally without prior consultations and meetings with our teams from the Ministry of Finance and State Bank of Pakistan,” the press release added.
Following Moody’s intimation of the action, Ministry of Finance held two meetings with the Moody’s team over the past 24 hours, sharing data and information which clearly show a picture contradicting Moody’s rating action.
Moody’s “worsening near- and medium-term economic outlook” does not depict the correct picture due to gaps in information available with Moody’s and its use of estimations is not grounded in fundamentals.
As such, the estimate of economic cost of the floods at $30 billion is premature as the data is still being compiled in collaboration with World Bank and other partners, to ensure transparency and accuracy, and will be available once the figures are firmed up.
Thus, the impact on GDP growth rate cannot be fully and accurately assessed at this time and so Moody’s downward revision of GDP growth rate at 0-1% has no solid basis. Similarly, translating economic losses into fiscal deficit is contested. On the expenditure front, government will largely be involved in public infrastructure rebuilding, and that too, over several years.
The uptick in urgent current expenditure is being met through re-allocations and re-appropriations of budgeted funds thus mitigating the risk of rising deficit. On the revenue front, the increase in nominal GDP is likely to compensate for any dip in revenues.
Some of the key numbers can further help understand performance of the economy in the post-flood scenario:
On revenues, it may be noted that FBR taxes grew by about 28% in September FY23. Meanwhile, the recent post-flood performance numbers of various sectors of the economy including agriculture and livestock show that its impact on current account deficit is likely to be moderate compared to that assumed by Moody’s.
Commodity prices, especially crude oil, have eased compared to a month ago, this would help in offsetting some of the impact of floods on the current account deficit. The downward trend of the deficit during the past months of FY23 has already been widely reported.
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