Moody’s further downgrades Pakistan’s credit rating to CAA-1 after devastating floods
Moody’s Investors Service further downgraded Pakistan’s credit rating to ‘Caa1’ from ‘B3’ and maintained the outlook at negative, as the government’s dollar requirement increased in the wake of recent catastrophic floods.
Unprecedented monsoon rains and melting glaciers flooded one-third of Pakistan, killing nearly 1,700 people, including women and children.
According to Moody’s rating agency, the flood will also affect Pakistan’s external financing needs, which will increase the risks of a crisis in terms of maintaining credit payments.
However, Moody’s has kept Pakistan’s economic outlook as ‘negative’.
According to the report, the decision to place Pakistan in the CAA-1 rating has been taken in view of the government uncertainty arising after the recent catastrophic floods, external threats and high debt sustainability risks.
Moody’s said in its statement that after the floods, Pakistan’s liquidity and external debt defaults increased and there was a large increase in social spending while government revenues were severely damaged.
The statement said that credit availability and long-term credit vulnerability for Pakistan will remain extremely weak in the future.
The CAA-1 rating reflects Moody’s view that the absence of access to market financing at affordable rates makes Pakistan more dependent on financial support from multilateral partners and other government lenders to meet its debt repayments.
Moody’s expects Pakistan’s Extended Fund Facility (EFF) program with the International Monetary Fund (IMF) to continue and pave the way for loan from the IMF and other multilateral and bilateral partners in the near future.
The rating agency said the negative outlook identified risks related to the country’s ability to obtain the required financing to fully meet its needs over the next few years.
