Ratings agency Moody’s Investor Service downgraded the outlook for cash-strapped Pakistan from stable to negative, citing “heightened external vulnerability” and uncertainty over securing external financing to meet the country’s needs, according to a media report.
“Moody’s believes that Pakistan’s external vulnerability risk has been amplified by rising inflation, which is putting downward pressure on the already thin current account, currency and foreign exchange reserves, particularly in the context of ‘increased political and social risk,’ the statement said. .
The Moody’s report added that the country’s “weak institutions and strength of governance” had added uncertainty over the future direction of macroeconomic policy, including whether Pakistan would complete the financial mechanism program. (EFF) of the IMF and would maintain a credible policy trajectory that supports additional financing.
However, it affirmed the “B3” ratings of long-term local and foreign currency issuers and senior unsecured debt.
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“The decision to affirm B3 rating reflects Moody’s assumption that, notwithstanding the downside risks mentioned above, Pakistan will conclude the seventh review under the IMF’s EFF program by the second half of this calendar year and will maintain its engagement with the IMF, leading to additional financing from other bilateral and multilateral partners,” he said.
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Moody’s said Pakistan will be able to close its financing gap over the next two years.
“The B3 rating also incorporates Moody’s assessment of the size of Pakistan’s economy and robust growth potential, which will provide the economy with some capacity to absorb shocks.
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“These credit strengths are offset by Pakistan’s fragile external payments position, weak governance and very weak fiscal strength, including very low debt affordability,” the statement said.
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Post expires at 11:05am on Monday June 13th, 2022