ISLAMABAD: Amidst the pervasive gloom and doom narrative surrounding Pakistan’s economy, often amplified by certain elements on social media, a recent development offers a glimmer of hope. Global credit rating agency Fitch has upgraded Pakistan’s long-term foreign-currency issuer default rating (IDR) to CCC+ from CCC.
This upgrade is primarily attributed to the recent agreement with the International Monetary Fund (IMF). Despite the challenges, this development indicates that matters are gradually improving in the right direction.
The upgrade from Fitch is more than just a change in rating; it is an international recognition of the government’s right economic policies. The CCC+ rating suggests that there are some positive developments or stabilizing factors that have been recognized, offering a marginally better outlook for the country’s economic situation and its ability to meet its financial commitments.
The efforts of the finance team, led by Minister for Finance Muhammad Aurangzeb, deserve special appreciation. Their timely conclusion of the IMF agreement has not only improved the credit rating but also opened the door for more financial inflows from other global lenders.
Moreover, the consensus decisions being taken at the platform of the civil-military joint platform, the Special Investment Facilitation Council (SIFC), are playing a pivotal role in setting the right economic direction. As a result of SIFC’s efforts, Pakistan has recently signed important agreements with friendly countries in the Gulf as well as China. These investments, if materialized, will pave the way for sustainable economic growth.
Undoubtedly, the path to economic stability and growth requires a continued commitment to reforms and effective management of resources. In this regard, Fitch has also issued a word of caution: failure to implement challenging reforms could derail the progress.
These reforms, while necessary, are often painful and require careful handling to protect the most vulnerable segments of society. The process of digitization within the Federal Board of Revenue (FBR) should be expedited to ensure that all potential sectors are brought into the tax net. This is crucial not only to reduce the burden on honest taxpayers but also to free the country from the debt trap.
Bolstering exports is equally important, as this will significantly enhance foreign exchange reserves, which are essential for better managing the current account deficit. The efforts being made by the SIFC are expected to bear fruit, with the target of achieving $60 billion in exports, including $15 billion from the IT sector, over the next five years.
Achieving this goal would place Pakistan in a better position to end its reliance on foreign loans. Engaging overseas Pakistanis to attract their investments in major sectors is another critical strategy. Their contributions can provide a substantial boost to the economy, helping to drive growth and development.
Reforms in the energy sector have become imperative. The issue of circular debt is significantly hurting the economy and the common man. Despite the frequent increase in electricity tariffs, the problem of power circular debt remains unresolved.
The government must address this issue and come up with out-of-the-box solutions. Engaging with Independent Power Producers (IPPs) to renegotiate power agreements could be a viable approach to mitigating this problem, in addition to exploiting the indigenous resources to meet the future energy requirements of the country.
