Islamabad: Global rating agency Moody’s Investor Service on Thursday downgraded cash-strapped Pakistan’s outlook from stable to negative, citing “heightened external vulnerability” and uncertainty around securing external financing to meet the country’s needs, a media report has said.
Moody’s said that while it was hopeful Pakistan would complete its IMF review and attract further external financing, if Pakistan failed to do so then it could face a balance of payments crisis.
Pakistan has repeatedly been seeking international aid to support its failing economy, the Dawn reported.
The talks with the International Monetary Fund are being held in the Qatari capital Doha.
Saudi Arabia has agreed to provide Pakistan with a “sizable package” of around USD 8 billion to help the cash-starved country bolster dwindling forex reserves and revive its ailing economy.
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,” Moody’s said in a statement.
It added that the country’s “weak institutions and governance strength” had added uncertainty around the future direction of macroeconomic policy, including whether Pakistan would complete the International Monetary Fund’s (IMF) Extended Fund Facility (EFF) programme and maintain a credible policy path that supports further financing.
However, Moody’s affirmed Pakistan’s B3 local and foreign currency issuer and senior unsecured debt ratings as well as the (P) B3 senior unsecured medium-term note (MTN) programme rating.
MTN allows continuous or intermittent fundraising from investors through the designated or appointed dealers.
Explaining the decision to affirm the B3 rating, Moody’s said it assumed that Pakistan would conclude its seventh review under the IMF EFF programme by the second half of this calendar year and would maintain its engagement with the Fund, leading to additional financing from other bilateral and multilateral partners.
“Moody’s assesses that Pakistan will be able to close its financing gap for the next couple of years. The B3 rating also incorporates Moody’s assessment of the scale of Pakistan’s economy and robust growth potential, which will provide the economy with some capacity to absorb shocks.
“These credit strengths are balanced against Pakistan’s fragile external payments position, weak governance and very weak fiscal strength, including very weak debt affordability,” the statement said.