Nawaz Sharif's emphatic victory at the hustings in Pakistan will provide him sufficient room to shape his party's own agenda, the global rating agency Moody's said but warned the new government will inherit the effects of overall policy inertia.
The rating agency also said any flare up in relations with India could impact Pakistan's credit fundamentals.
"(Nawaz Sharif's) PML-N's near majority should provide it with sufficient political room to shape its own agenda. However, the new government will inherit the effects of overall policy inertia," Moody's said in a research report.
The agency further said "the previous civilian government which served out its full term had been unable to come to grips with these same challenges." Topmost amongst these challenges include external support to avert a balance-of-payments crisis, carrying out difficult structural reforms, and balancing diplomatic relations with the US. From a credit perspective, stable relations with the US would be key and any material flare-up in relations with neighbouring India could also have implications for Pakistan's credit fundamentals, it said.
"Stable relations with the US would be key, as they would support the continued disbursal of Coalition Support Funds1, which were suspended briefly in 2012... And finally, any material flare-up in relations with neighbouring India could also have implications for Pakistan's credit fundamentals," Moody's said.
Securing external support and reform progress will be central for bolstering Pakistan's credit profile, Moody's said and added that managing political risks will also be important.
The PML-N win in the May 11 elections was historic as was the first democratic transition of power between two governments since the country was founded 66 years ago.
"While the likely victory margin for the Nawaz Sharif-led Pakistan Muslim League (Nawaz) or PML-N provides a seemingly strong mandate for governance, the in-coming government faces a number of key credit challenges that will be difficult to manage regardless of which coalition partner, if any, is required to achieve a Parliamentary majority," Moody's noted.
In order to obtain the required majority of 137 and to form a new government, the PML-N could secure support from other independents, thereby possibly precluding the need to ally itself with other major parties.
