**Shahbash IK and TuQ
Yh hai Naya Pakistan !
Xi’s cancelled trip is credit negative for Pakistan, says Moody’s**
Sep 8, 2014 12:17pm
by Mian Ridge
http://blogs.ft.com/beyond-brics/files/2014/09/Pakistan-protests-272x354.jpg
In another unhappy turn for Pakistan, China’s president Xi Jinping postponed a state visit to the country on Saturday after three weeks of anti-government protests. Moody’s, one of the three big international credit rating agencies, warned this was a credit negative for the country because it would delay** “Chinese aid and a host of deals between the countries”.**
Such deals with China, Pakistan’s largest trading partner, are reported to be worth $34bn.
**Only recently, Pakistan’s economy appeared to be on the up. In July, Moody’s raised the country’s sovereign ratings outlook to stable from negative after funding from Saudi Arabia, the World Bank, the Asian Development Bank and a successful Eurobond issue helped buoy Pakistan’s financial account.
Both its fiscal balance and the level of its foreign reserves began to improve after Prime Minister Nawaz Sharif of the Pakistan Muslim League – Nawaz came to power in **May last year.
The fiscal deficit had widened during the previous tenure of the Pakistan’s People Party.
But in mid August former cricketer Imran Khan’s Tehreek-e-Insaf (PTI) party and Islamic cleric Tahir ul Qadri led mass street protests, claiming that elections that brought Sharif to power were rigged. They continue to call for him to resign.
Sharif’s critics say his failure to implement reforms and his poor relations with the country’s powerful army have encouraged the protests.
Since then, the crisis has flared and subsided and flared again. Last week, the PTI agreed to return to talks with the
government. Commentators say it is too early to say whether a negotiated solution is in sight.
The Chinese foreign ministry said in a statement posted on its website:*
In view of the current political situation in Pakistan, the Governments of China and Pakistan have mutually agreed to postponement of the state visit of President Xi Jinping to Pakistan, which was scheduled to take place later this month.
*
In a note, Moody’s warned that:*
Pakistan’s prolonged political unrest also threatens progress on structural reforms since a weakened government will be less able to implement policies to address pressing domestic challenges. Upheaval within the government could disrupt the country’s relations with the International Monetary Fund (IMF), with which it has an ongoing program. Disbursements from the IMF program, linked multilateral funding, and bilateral support are crucial to
maintaining Pakistan’s external liquidity position, a key factor driving its creditworthiness.
*
Anushka Shah, a Moody’s analyst in Singapore, told beyondbrics that downward triggers to the rating “would be a lapse of the ongoing IMF programme, a deterioration in the external payments position or a worsening political environment”.
The yield on a **$500m bond **maturing in **2016 **rose since the protests started in early August, from lows at the beginning of the month of **5 percent to 6.1 percent **on Thursday:
http://blogs.ft.com/beyond-brics/files/2014/09/pakistan1.pngSource: Thomson Reuters
Shah pointed out that Pakistan has been **“broadly on track” **to achieve financial reforms that are part of its deal with the IMF.
**
These include raising revenues by trimming tax concessions, addressing energy shortages and privatising public sector enterprises, which may be politically vexed.
**
If Pakistan completes a fourth review with the IMF, scheduled for early this month, it would allow the immediate release of** $545m,** taking cumulative disbursements under the 36-month, $6.7bn programme to $2.8bn.
Moody’s published a graph to show how, in Pakistan, stronger fiscal performance and external liquidity are correlated with periods of political stability:
http://blogs.ft.com/beyond-brics/files/2014/09/pakistan.pngSource: Moody’s
Investor Service
It wrote:Policy commitment to push ahead with difficult reforms will be crucial to maintain external support from the IMF and others, which is necessary to bolster the sovereign’s credit profile. The fragile nature of Pakistan’s democracy and its history of military coups make the reform process particularly susceptible to derailment by domestic politics.
China said diplomats from both countries were discussing new dates for the visit:
Both countries underline that China and Pakistan are time-tested all-weather friends. Both sides attach high importance to the visit of President Xi Jinping to Pakistan, as early as possible, for promoting mutually beneficial cooperation between the two countries.