SINGAPORE, June 02(ABC): Moody’s Investors Service Thursday downgraded the outlook on Pakistan’s rating to negative from stable and affirmed the ‘B3’ local and foreign currency long-term issuer and senior unsecured debt ratings.
The decision to change the outlook to negative is driven by Pakistan’s heightened external vulnerability risk and uncertainty around the sovereign’s ability to secure additional external financing to meet its needs.
“Moody’s assesses that Pakistan’s external vulnerability risk has been amplified by rising inflation, which puts downward pressure on the current account, the currency and — already thin — foreign exchange reserves, especially in the context of heightened political and social risk,” a statement issued by the credit rating agency read.
It further added that Pakistan’s weak institutions and governance strength add uncertainty around the future direction of macroeconomic policy, including whether the country will complete the current International Monetary Fund (IMF) Extended Fund Facility (EFF) programme and maintain a credible policy path that supports further financing.
However, it stated that the decision to affirm the B3 rating reflects Moody’s assumption that, notwithstanding the downside risks mentioned above, Pakistan will conclude the seventh review under the IMF EFF programme by the second half of this calendar year, and will maintain its engagement with the IMF, leading to additional financing from other bilateral and multilateral partners.
In this case, Moody’s assessed that Pakistan would be able to close its financing gap for the next couple of years.
