Pakistan becomes first country to be downgraded twice by MSCI The downgrading might actually result in a big fish in a small pond effect for Pakistan
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hat is Pakistan really? For a long time we were poor (in fact, one could argue, we still are poor). We have also been the antiquated third world - but mostly we’ve gone back and forth between poor and developing. As the world shed old terms, and adopted other more factual ones, it seemed like we were making some headway. We were an emerging market. We were part of the new, global world or what have you. Which is why the downgrading of Pakistan from an emerging market to a frontier market seems to have made headlines at home. Even though it’s just a technical terminology by one index - Morgan Stanley Capital International, or MSCI - it signals something bigger - as if we have failed somehow, or remained stagnant.
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What the downgrade is
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hat is happening, essentially, is that MSCI calculates the worth of different markets around the world and assigns them different rankings. A developed market is the best ranking and a standalone market is the lowest ranking. To calculate these rankings, MSCI provides market indices. A market index is usually a single number that is calculated from different economic factors, like prices or income. These numbers are calculated to be able to compare different economies in different countries. An example for such an index would be the Gross Domestic Product (or GDP). Pakistan up until this announcement had Emerging Market status with the MSCI, but it has recently been downgraded o a Frontier Market. This is also the second time that Pa-
kistan has been downgraded, and it is now the only country to have been downgraded twice by the MSCI. This means that foreign investors will now look at Pakistan and not be as excited about investing there. Essentially, the downgrading would mean Pakistan appears a riskier investment than it would if it remained an emerging market. However, it also means that certain other kinds of investors willing to take on more risk in exchange for more freedom and the chance of greater returns will be interested. The last time Pakistan was at a bleak edge like this was in 2008. Back then, Pakistan had the status of an emerging market, which was an ideal place to be in. Pakistan was far away from the dreaded stand alone market status, and had stayed in the emerging category since 1994. The names of these categories are not particularly important, nor do they mean much. All you need to know is that a devel-
