Event

Pakistan’s Finance Minister has admitted several official socio-economic data (e.g. poverty, population, unemployment) are unreliable. Wide uncertainties relate to public finances with a deficit said to be 2% of GDP higher than officially reported (4.9% in the 2014-15 fiscal year). Pakistan has long faced data issues which are acknowledged by the IMF – currently at the 8th review of a 3-year financial programme with Pakistan (active until September 2016) – and regularly complicate policy-making and development programmes.

Impact on country risk

In spite of lacking data accuracy, intentional or not, Pakistan’s largest bilateral creditors (notably China and Saudi Arabia) and the IMF are to continue their financial assistance for geopolitical and financial stability reasons. This is of primary importance given Pakistan’s historically poor implementation of IMF targets and high reliance on official lending. Even though some official economic data is questionable (unlike the information coming from the State Bank of Pakistan though), Pakistan is enjoying a slightly improved momentum. GDP growth has gradually risen from 3.7% in 2013-14 to an expected 4.5% in the 2015-16 fiscal year thanks to better power supply (a severe structural impediment to business) and infrastructure-/transport-related investments in the frame of the China-Pakistan Economic Corridor. Moreover, on the back of lower oil imports and stronger workers’ remittances, the external current account is nearing balance and foreign exchange reserves – further supported by IMF disbursements – are close to 3 months of import cover. Nonetheless, exports are weakened by poorer external demand whereas the country has to cope with deflation pressures. Given consumer price inflation now at a 12-year low under 2%, interest rates have been cut to a record 6%, the lowest level in decades. Although economic performances show gradual improvement, security and political instability remain major downside risks to the economic outlook and dampen any hope of upgrading Credendo’s political risk ratings for the time being. Aanalyst: Raphaël Cecchi, r.cecchi@credendogroup.com