Credit risk of Pakistan - myth and reality.

• Author: Nisar, Ahsan

Byline: Ahsan Nisar

There has been a constant debate about Pakistan's credit risk lately and all sorts of theories and analyses have been volunteered to make a case that the credit risk of Pakistan has been deteriorating for the last few years based on one pretext or the other - starting from abnormally high debtlevels to GDP growth not being the best judge of economic progress, etc.

The world economies have been getting more and more integrated over the past few years and the case of Pakistan is no different. The constant improvement in the external and internal debt mix has also contributed towards the improvement in the risk profile of Pakistan as the risk of default in case of sovereign is always driven from the weaknesses in the external accounts and servicing on its FX obligations.

The Foreign Direct Investment (FDI) is suffering across the emerging markets in any case and Pakistan is no different but it's still doing better than emerging markets. The fact also is that the reserves had been accumulated to bridge any need that may arise to keep the situation on external account comfortable.

The outlook for the next 3 to 4 years based on the shock absorbers is comfortable; however, in the meantime, the reforms are inevitable especially in the areas of exports (particularly textiles) which are all under private sector.

The government has addressed the legitimate demand of exporters by rolling out the relief package and now it's upto the exporters to focus on the ways to capitalize on it. The situation on exports front can only be arrested through the combined efforts of both public and private sectors. The FDI across emerging markets is suffering and there has actually been exodus of investment flows; however, Pakistan's FDI flows, albeit weak, have been positive.

Pakistan's net...