Tuesday, August 1, 2017

Disqualification of prime minister increases policy uncertainty: Moody's

http://dunyanews.tv/en/Business/399418-Disqualification-of-prime-minister-increases-polic

  Last Updated On 01 August,2017 About 29 minutes ago

Credit implications depend on impact on government reforms, Moody's stated.

(Dunya News) - Credit rating agency Moody  on Tuesday reported that Nawaz Sharif s disqualification by the Supreme Court in Panama Papers case poses risks to policy continuity. If heightened political uncertainty and strife among the various branches of government disrupt the administration s economic and fiscal agenda, macroeconomic stability and the government s access to external finance could be impaired, weighing on Pakistan s credit profile.

The investigation into Nawaz Sharif followed the 2015 publication of the “Panama Papers,” which disclosed his children s vast and previously unreported wealth. According to media reports, the Supreme Court ruling includes an order for the National Accountability Bureau to initiate further investigations into the former prime minister and his children. High domestic political risk embedded in Pakistan s credit profile Our assessment that Pakistan’s susceptibility to domestic political event risk is “High” incorporates our view that the probability of political events occurring that could affect the sovereign credit profile is high; and that such events would have a large impact on policymaking and thereby the economy and the government s access to finance. Pakistan s politics have long been characterized by military coups and strife between the executive, judiciary and military. The persistence of heightened political risk has contributed to the country s weak government effectiveness and control of corruption

Following the country s first democratic transfer of power in 2013, when his party secured an absolute electoral majority, it appeared that Nawaz Sharif might become the first civilian prime minister in the country s history to complete a full five-year term. His ouster now could trigger another period of political instability, undermining Pakistan’s ability to address pressing domestic economic challenges, bolster investor confidence and attract external financial support from official creditors and donors. Uncertainty about policy continuity beyond immediate succession Some political continuity will be maintained in the near term, Moody’s stated.

Nawaz Sharif has announced that Shehbaz Sharif – his brother – will replace him as prime minister and standard bearer of the Pakistan Muslim League (PML) political party. Shehbaz Sharif has served as chief minister of Punjab, Pakistan s wealthiest province and political power center, for the past four years and has overseen several highprofile social and infrastructure development projects. Prior to becoming prime minister, Shehbaz Sharif must step down as chief minister and win a spot election to his brother s parliamentary seat in the National Assembly, which is likely to take place in the coming weeks. In the meantime, Shahid Khaqan Abbasi, the current petroleum minister, will serve as interim prime minister. Given the PML s strong level of support in Punjab and Shehbaz Sharif s general popularity as chief minister, his victory appears highly likely. However, with Pakistan s next general election due only by August 2018, the change in PML leadership and ongoing investigations into the Sharif family could disrupt the policymaking process and economic reforms.

Credit implications depend on impact on government reforms, access to external finance We expect domestic political risk to continue to constrain Pakistan’s credit profile in the near and medium term, due to both recent events and the country’s long-standing history of domestic security challenges, disruptive politics and military coups. The extent to which these events detract from economic and fiscal policymaking, and reduce government effectiveness in general, will ultimately determine their impact on Pakistan s credit profile. Under Nawaz Sharif s leadership, in September 2016, Pakistan completed a three-year International Monetary Fund (IMF) Extended Fund Facility program that helped to stabilize the economy. Through its reforms, the government reduced the fiscal deficit, introduced more rigorous inflation management, and rebuilt foreign exchange reserves.

More recently, fiscal consolidation has slowed, reserves have declined anew, and external pressures have started to build.1 Continued government commitment to policies that preserve macroeconomic stability gains and advance fiscal consolidation would limit future widening of the twin deficits, supporting Pakistan s creditworthiness. Conversely, slippage from such commitments would exert negative pressure on the credit profile. In addition to the IMF program, Nawaz Sharif oversaw a major expansion of Pakistan s economic relationship with China (A1 stable) through the launch of the China-Pakistan Economic Corridor (CPEC)2 project in 2015.

The CPEC is a large package of Chinese investment projects with the potential to transform Pakistan s economy by relieving supply-side constraints to growth through investment in power-generation and transport infrastructure. If implemented as planned, CPEC would lift Pakistan s potential GDP growth significantly and catalyze higher private-sector investments and exports. However, security-related issues and Pakistan s weak track record of public project implementation suggest that the pace of execution will be relatively slow. Moving forward, continued support for the CPEC project across all branches of government will be critical to its success and full implementation.  

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