Deteriorating economy of Pakistan: In the perspective of negative rating by Standard & Poor

When Pakistan's current Prime Minister, Imran Khan, lead his party as Opposition leader, he opposes Pakistan Muslim League Government led by Nawaz Sharif, by every means and on various fronts, and consistently saying that Pakistan was going to the trough due to Sharif's policies and after elections, when his party comes to power, he has already prepared a roadmap for taking out Pakistan from all these vicious cycles. But now it’s almost 6 months passed for Imran Khan to sworn as Prime minister, but from the point of view of an independent observer, there is no change visible in the policies of the government. If we talk about the economic front, the plight of Pakistan in the last 2 to 3 years seems to have become a permanent affair. Earlier in February, In the latest ratings review by the global rating agency Standard & Poor's sovereign credit rating of Pakistan, which was at "B" level till date has now been reduced to "B-". After this step, Pakistan is down 6 ratings points with the AAA rating to be the most favorable for investment. This means that the economic financial and business situation of the country receiving this rating has reached the most dangerous situation. The main reason behind this negative rating has been the declining opportunities of economic growth and development in Pakistan, the fiscal deficit that has been increasingly rising and tremendously growing external debt. At the same time, Standard & Poor has described Pakistan's rating outlook as "STABLE", which cannot be said to be encouraging from any point of view.

Earlier in December, another credit rating agency "Fitch" had reduced the Foreign Currency Issuer Default (IDR) of Pakistan from "B" to "B-". It is worth mentioning that this is happened before the scheduled repayment of nearly $ 1 billion Eurobond in April 2019, which cannot be called as suitable for the economic health of Pakistan. At present, the economic and financial circumstances of Pakistan are in such condition that it will have to spend 7 to 9 billion dollars annually on the payment  of their loans and interest for the next three years. But due to the continuous decreasing foreign exchange  of Pakistan, which has fallen to a new low of just $ 7.26 billion on December 7, 2018, and it is adequate to fulfill  only a month and a half  of imports.

Pakistan has been dependent on new loans to repay loans and interest on them constantly. On January 25, Pakistan has received a new loan of $ 1 billion from Saudi Arabia. Earlier on January 24, Pakistan has received another $ 1 billion aid from the United Arab Emirates, which is part of the $ 3 billion package, which aims to improve the balance of payments in Pakistan. It is worth mentioning that Pakistan is currently struggling with the worst state of balance of payment of its history. Pakistan has an urgent need of approximately $ 12 billion to deal with its soaring liabilities. And for this,  is in touch with many countries and also from the International Monetary Fund.

 The real culprit behind Pakistan's present economic situation is the CPEC project, which has now crossed the $ 60 billion mark. A successful pattern can be seen in China’s policies, the way China is wooing its plans around the world on its "Debt Trap" policy. Pakistan is not going to reap benefit from this plan as practically as much as China. At the same time, Pakistan has come under the debt trap in China and it is in a position to put its integrity at stake. Now Pakistan has also accepted the widespread wastage in this project and Pakistan's economic losses regarding this project. In the meeting of the twentieth  joint coordination committee of this project held in December, decided to stop construction of 1320 MW power plant based on coal in Rahim Yar Khan. At the same time, many important officials of Pakistan have indicated that the government of Pakistan has identified such 400 small projects which they believe are politically motivated and can be removed from the list of CPEC shortly.

 If we talk about this step taken by Standard & Poor, it can prove to be extremely dangerous for Pakistan's current crisp condition. In such a situation, when Pakistan's trade and budget deficit is continuously increasing, and Pakistan expects financial assistance from its foreign partners. But it will be the clear loss by downgrading its rating from B to B-.  Now when Pakistan offer new Eurobonds and Sukuk bonds for foreign investors, it will have to work much more to entice investors, and since the risk is now increased, there will also be providing more attractive interest rates which cannot be conformed to Pakistan's financial health.

 At present, the budget deficit of Pakistan is 2 trillion Pakistani rupees and it is increasing steadily fast and since expenditure is more than revenue it does not seem to be in control in the near future. In the same way, Pakistan's import is much more than export, in that case its foreign exchange fund is moving towards the end, on the other hand, the exchange rate of Pakistani rupee with the major foreign currencies of the world is continuously declining. Standard & Poor also believes that if Pakistan lays down the loan program with the International Monetary Fund, then it is a direct sign that the pace of economic reform in Pakistan is very low. And it is also clearly reflected by some key figures of Pakistan's economy. The growth rate of Pakistan's economy has come down to 4 percent, while its target was 6.2 percent. It is evident from the fact that the central bank of Pakistan (State Bank of Pakistan) in its policy statement stressed on economic stability and deductions, more than economic growth, due to which there has been a huge increase in imports. On January 31, 2019, the State Bank of Pakistan increased the rate of interest to 10.25 percent, which is highest in the last five years. At such high rates of interest, inflation can be kept under control but economic development will have to take a toll on it. Now the only hope for Pakistan's exit from this vicious circle is foreign debt, in which it is already overwhelmed. Now to see how this strategy of dealing with loans will prove successful?