KARACHI: Pakistan is optimistic about securing an upgrade to the category ‘B’ credit rating from international rating agencies during the current fiscal year amid persistent improvement in macroeconomic indicators, the finance minister said on Wednesday,
Speaking at the eighth edition of The Future Summit, Finance Minister Muhammad Aurangzeb said that Pakistan has made significant strides towards achieving macroeconomic stability. This progress is evident in several ways, as the country has transitioned from twin deficits to surpluses.
He noted that the gains made in the last fiscal year have been reinforced in the first quarter of the current fiscal year, with current account surpluses reported in August and September, supported by strong remittance flows. This positive trend has continued into October.
The minister highlighted early achievements in macroeconomic stability, including a stable currency, increased foreign exchange reserves, a declining inflation trajectory, and a noteworthy reduction of 250 basis points in the policy rate. He emphasised that macroeconomic stability is not an end goal in itself but a means to achieve broader economic objectives.
Aurangzeb said that Pakistan has made positive progress in improving its credit rating during. He added that the country “will move towards a ‘Single B’ rating during this fiscal year, so we can rejoin the comity of nations.”
On Tuesday, he informed the media that the government intends to issue Eurobonds to raise funds from international capital markets in the fiscal year 2025-26. However, Eurobonds and Panda bonds’ issuance depends on an improved credit rating. Two rating agencies have already upgraded Pakistan’s rating by one notch, citing the country’s improving macroeconomic conditions supported by the new International Monetary Fund’s $7 billion loan programme. Pakistan’s long-term issuer rating was raised by one notch to CCC+ by Fitch in July, and then to Caa2 by Moody’s in August.
He disclosed that the prices of pulses and chicken will be key topics in the Economic Coordination Committee (ECC) meeting. He noted that the international prices of these two food items have declined and that petroleum prices and transportation costs have generally decreased over the past six months. He questioned how the prices of pulses can increase by 50-60 per cent and how chicken prices can jump by 15 per cent.
“We will not allow middleman arbitrage,” he said. “We will ensure that the benefits of the declining inflation rate, which has fallen from 38 per cent to single digits, reach the consumers on the ground.”He said foreign direct investment (FDI) should ideally boost exports; otherwise, currency challenges will arise. FDI should be directed towards the export sector in the future, and the country should aim to enter international capital markets.
He warned that population growth poses a survival threat to the country, with 40 per cent of children under five suffering from malnutrition. Addressing health, reducing population growth, and improving nutrition, and sanitation are crucial. Focus must also be given to education, particularly for girls.
He also mentioned that Pakistan is the first country working with the World Bank on a decade-long plan known as the country partnership framework, and is involving other lending agencies for national development.
Dr Reza Baqir, former governor of the State Bank of Pakistan, said Pakistan is not the only country that has repeatedly borrowed from the IMF; many other countries have done the same. The Philippines, for example, borrowed a lot from the IMF at the start of this century. At that time, its debt was 70 per cent of its GDP, similar to Pakistan’s current situation.
However, the Philippines has managed to keep its primary surplus stable for the past 15 years. Despite changes in political parties, its debt-to-GDP ratio has now reduced to less than 40 per cent.
Baqir, who is currently serving as the managing director at Alvarez & Marsal and Global Pracce Leader, A&M’s Sovereign Advisory Services, said Jamaica had a debt ratio of 140 per cent of its GDP. From 2009 to 2023, Jamaica reduced its debt to 60-70 per cent of its GDP, essentially halving it. Jamaica also reached a political consensus across all political forces to make this happen.
“While macroeconomic improvement is crucial for the country’s development, it is not the only solution, he said and added that the vision for progress will not come from foreign institutions or aid providers. We need to decide how to develop our country,” he said.
“We should not think that if we achieve macroeconomic stability, the economy will automatically improve. The country will progress through industrial policy because industries adopt a long-term view of the country’s development,” he added.
Former Investment Minister and Chairman Board of Investment Mohammad Azfar Ahsan stated that Pakistan has many opportunities for growth across all sectors of its economy. Over the last 25 years, the country has attracted $49 billion in FDI, with an average annual FDI of $1.92 billion. Pakistan’s GDP is $376 billion, and ideally, FDI should be around 3.0 per cent of GDP.
Unity Foods’ CEO, Farrukh Amin said that 40 per cent of Pakistan’s population faces food scarcity. Last year, Pakistan imported $1 billion worth of wheat, despite having a bumper wheat crop that caused farmers a loss of Rs400 billion. The recent drop in inflation has reduced wheat prices, which poses a risk for farmers.
Yousuf Hussain, president of the Overseas Chamber of Commerce and Industry (OICCI), said that the chamber is conducting international benchmarking in Pakistan’s key sectors, and this information will be available to its members. For benchmarking, a foreign expert company has been hired.
