ISLAMABAD, Dec. 2 (Xinhua) -- The U.S.-based investment rating agency Moody's on Monday upgraded Pakistan's outlook to "stable" from the existing "negative," owing to the recent measures taken by the Pakistani government to stabilize economy.
The change in outlook to stable is driven by Moody's expectations that the balance of payments dynamics will continue to improve, supported by policy adjustments and currency flexibility. Such developments reduce external vulnerability risks, although foreign exchange reserve buffers remain low and will take time to rebuild, the agency said in a report.
It said that while fiscal strength has weakened with higher debt levels largely as a result of currency depreciation, ongoing fiscal reforms, including the country's borrowing from international lenders, will mitigate risks related to debt sustainability and government liquidity.
"The rating affirmation reflects Pakistan's relatively large economy and robust long-term growth potential, coupled with ongoing institutional enhancements that raise policy credibility and effectiveness, albeit from a low starting point."
"These credit strengths are balanced against structural constraints to economic and export competitiveness, the government's low revenue generation capacity that weakens debt affordability, fiscal strength that will remain weak over the foreseeable future, as well as political and still-material external vulnerability risks," the report added.
Moody's also hoped that the country will keep on working to narrow current account deficit, and increase its exports to gradually pick up on the back of the real exchange rate depreciation over the past 18 months.
It also assessed that the ongoing completion of power projects will reduce capital goods imports for Pakistan, adding that the power plants including those constructed under the China-Pakistan Economic Corridor "have largely addressed chronic power shortages, domestic security has improved significantly in recent years, and ongoing investments in transport infrastructure will improve its quality and connectivity."
Shortly after the update of Pakistan's upgradation by Moody's, Adviser to the Pakistani prime minister on Finance, Revenue and Economic Affairs Abdul Hafeez Shaikh tweeted that "the upgradation of outlook to stable is affirmation of government's success in stabilizing the country's economy and laying a firm foundation for robust long term growth."
The Finance Ministry said in a statement that "the government remains fully committed to its reform agenda, which is producing the outcomes that will lay a firm foundation for accelerated, sustainable and inclusive growth in the future."