Is There a Recovering Economy? (Pakistan)

The prime minister of Pakistan, Nawaz Sharif, and the finance minister, Ishaq Dar, has reason to celebrate according to the international credit rating agency, Moody's. It has changed the outlook from stable to positive for the government's foreign currency bonds' credit rating. According to the credit rating agency, the economy's macroeconomic indicators have improved, which has led to a minor improvement.

The country's $3 billion worth of Eurobonds from last year are rated. The key factors behind the upgrade, according to Moody's, were compliance with the IMF's structural reform plan, rising foreign exchange reserves, and declining gas costs. The China-Pakistan Economic Corridor (CPEC) project has been referred to by Moody as a "credit positive" for Pakistan. The government's support for the initiative is meant to encourage investment, expand bilateral trade, and alleviate the country's energy difficulties.

Is The Economy Recovering? (Pakistan)

The improvement itself is unexpected given that the same credit agency had previously issued a severe warning that Pakistan's creditworthiness had been seriously questioned by the January petrol crisis. The irony is that Pakistani bonds really have quite low credit ratings on the global market. Pakistan's foreign currency bonds have a Caa1 rating, which translates to "poor quality and high risk." To put it simply, you should have many fears before purchasing Pakistani government bonds.

The stock market appears to not be buying the mantra, as evidenced by the fact that it lost 0.72 percent of its value late last week and that the Karachi Stock Exchange (KSE)-100 index shed more than 1000 points on Monday. Perhaps this is why it is not surprising. Quick to point out that the country's solid cash situation is primarily a result of the most recent IMF funding, rather than an increase in direct investment flows, Moody emphasizes this point.

This indicates that Pakistan's economy is still very unstable and, in the words of Moody's, "extremely vulnerable to event risk," even though the likelihood of default may have lessened. Additionally, the benefits of the $46 billion, 2000-kilometer CPEC won't be realized until, at the very least, 2017. The senior Sharif and Ishaq Dar might want to hold off on their congrats to heed the dire warnings in Moody's statement.