Moody’s downgrades Pakistan with ‘C rating’ citing increased govt liquidity
New York-based credit rating agency Moody’s Investors Service downgraded Pakistan’s local and foreign currency rating and senior unsecured debt to Caa1 from B3, citing increased government liquidity and downside risks. external vulnerability and higher debt sustainability risks, local media reported.
“The outlook remains negative,” the New York-based rating agency said amid devastating floods in Pakistan, Dawn reported.
Debt affordability, a long-standing credit weakness for Pakistan, will remain extremely low for the foreseeable future.
The downgrade pushed the country into Category C after seven years (March 2015).
Pakistan strongly contested Moody’s downgrade decision, saying it was made unilaterally, was based on premature data and did not paint the true picture due to gaps and contradictions in information.
In June, Moody’s also downgraded Pakistan’s outlook to negative from stable due to a delay in an agreement with the International Monetary Fund (IMF) for an economic rescue package.
“The decision to change the outlook to negative is driven by Pakistan’s heightened external vulnerability risk and uncertainty over the sovereign’s ability to secure additional external financing to meet its needs,” Dawn newspaper reported citing the Moody’s statement.
Meanwhile, Pakistan’s current account deficit widened to $13.8 billion in the first 10 months (July-April) of the current fiscal year, from a deficit of $543 million a year earlier. earlier, Dawn reported.
According to IMF data, Pakistan’s foreign exchange reserves fell to $9.7 billion at the end of April, which can only cover less than two months of imports. That compares to $18.9 billion in reserves at the end of July last year.
Moody’s forecast the current account deficit to be 4.5-5% of GDP for the current fiscal year, slightly above government expectations.
Moreover, the next elections are scheduled in Pakistan by the middle of 2023. According to Moody’s, political parties will find it difficult to continuously adopt significant revenue-raising measures in the run-up to elections, especially in an environment high inflation.
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