by Khaleeq Kiani in Dawn, October 7th, 2022
ISLAMABAD: Amid strong opposition from the government, Moody’s Investors Service on Thursday downgraded Pakistan’s local and foreign currency and senior unsecured debt ratings to Caa1 from B3, citing increased government liquidity and external vulnerability risks and higher debt sustainability risks following the devastating floods.
“The outlook remains negative,” said the New York-based rating agency, adding that the floods had exacerbated Pakistan’s liquidity and external credit weaknesses and vastly increased social spending needs, while government revenue is severely hit.
Debt affordability, a long-standing credit weakness for Pakistan, will remain extremely weak for the foreseeable future. The downgrade has pushed the country into the C-category after seven years, i.e. March 2015….
Moody’s said its Caa1 rating reflected its view that Pakistan will remain highly reliant on financing from multilateral partners and other official sector creditors to meet its debt payments, in the absence of access to market financing at affordable costs. ….
Moody’s said Pakistan’s weak institutions and governance strength added to the uncertainty whether the country will maintain a credible policy path that supports further financing. The negative outlook also captures risks that, should a debt restructuring be needed, it may extend to private sector creditors…..
Concurrently, the Moody’s also lowered Pakistan’s local and foreign currency country ceilings to B2 and Caa1 from B1 and B3, respectively. The two-notch gap between the local currency ceiling and sovereign rating is driven by the government’s relatively large footprint in the economy, weak institutions, and relatively high political and external vulnerability risk….
Moody’s also forecast inflation to pick up to 25-30pc on average for fiscal 2023, compared to a pre-flood estimate of 20-25pc. Social risks may increase as households face higher costs of living for a more protracted period, which would have attendant negative economic and fiscal implications. ….
https://www.dawn.com/news/1713874/moodys-hands-c-rating-to-pakistan-after-seven-years
