Moody’s downgrades Pakistan’s economic outlook to negative from stable
Moody’s Investors Service on Thursday downgraded the economic 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 turn the outlook into a negative was taken due to Pakistan’s growing external threats and uncertainty over its ability to secure additional external assistance to meet its needs, the statement said.
Moody’s estimates that rising inflation has increased Pakistan’s external risks, especially in the face of growing political and social risks, which has put negative pressure on the current account, current currency and already depleted foreign exchange reserves.
It was further stated that the weak institutions of the country and the power of governance have added to the uncertainty towards the future of macroeconomic policy especially on whether Pakistan will complete the International Monetary Fund (IMF) Extension Fund Facility Program and will maintain a credible policy path that supports further financing.
However, Moody’s confirmed the rating of Pakistan’s B3 local and foreign currency issuer and senior unsecured debt, as well as (P) B3 senior unsecured medium term note program, designated or fixed medium term notes allows investors to raise funds continuously or intermittently through dealers.
Explaining the decision to ratify the B3 rating, Moody’s said it assumed that Pakistan would complete its seventh review under the IMF’s Extended Fund Facility Program by the second half of this year and with the fund, which will result in additional financial support from other bilateral and multilateral partners.
He said that Moody’s estimates that Pakistan will be able to close its fiscal gap for the next two years. It will give the economy some capacity to absorb shocks.
The statement said that these credit powers are balanced against Pakistan’s fragile external repayment position, weak governance and extremely weak financial power, including its ability to withstand extremely weak debts.