NEW YORK: Moody’s Investors Service has said that Pakistan’s capability to pay back the foreign loan could become weaker if the amount increases further.
However, at the moment Pakistan’s foreign exchange reserves are satisfactory enough to pay back the foreign loans, Moody’s stated. About imports in the country, the investor’s service says imports have gone up to fulfill the need created due to rise in investment in the country.
It said Pakistan’s fiscal deficit is expected to reach 4.8 percent of the gross domestic product during the current fiscal year whereas depreciation of the domestic currency will increase inflation and borrowing costs. “While the reserve coverage of the external debt repayments remains adequate, we expect that coverage to weaken,” it said. Unless capital inflows increase substantially, possibly through and in combination with an IMF program, Moody’s sees an elevated risk of further erosion in the foreign exchange reserves.
Although increase in the investment in Pakistan is inevitable, Moody’s stated that the country has attracted heavy investments due to the China-Pakistan Economic Corridor projects. This rise in investment has called for the need to increase imports, as per the investor service.
Recently, China has been reported to have asked its state-owned companies to invest in Pakistan and transfer technology to the country under CPEC. This was said by Dr Li Jing Feng, director of Regional Studies and Strategic Research Centre at Sichuan Academy of Social Sciences, Beijing, China, at a roundtable on “BCIM-EC and CPEC within China’s Belt-and-Road-Initiatives”. He also said Gwadar is more important than the Chabahar Port as it is a deep sea port and bigger ships cannot dock at the Iranian port.