Saturday, March 25, 2023

Moody's changes Pakistan's outlook to stable from negative, downgrades ratings to 'Caa3' from Caal

Moody's changes Pakistan's outlook to stable from negative, downgrades ratings to 'Caa3' from Caal

ISLAMABAD (92 News) - The Moody's Investors Service, an international rating agency, on Tuesday changed the country's outlook to 'stable from negative'.

In a press release, the agency said that it has downgraded the Pakistan government's local and foreign currency issuer and senior unsecured debt ratings to 'Caa3' from Caal.

"The decision to downgrade the ratings is driven by Moody's assessment that Pakistan's 'increasingly fragile liquidity' and external position significantly 'raises default risks' to a level consistent with a Caa3 rating," the release added.

In particular, the country's foreign exchange reserves have fallen to extremely low levels, far lower than necessary to cover its imports needs and external debt obligations over the immediate and medium term. Although the government is implementing some tax measures to meet the conditions of the IMF programme and a disbursement by the IMF may help to cover the country's immediate needs, weak governance and heightened social risks impede Pakistan's ability to continually implement the range of policies that would secure large amounts of financing and decisively mitigate risks to the balance of payments.

The stable outlook reflects Moody's assessment that the pressures that Pakistan faces are consistent with a Caa3 rating level, with broadly balanced risks.

Overall, Moody's estimates that Pakistan's external financing needs for the rest of the fiscal year ending June 2023 to be around US$11 billion, including the outstanding US$7 billion external debt payments due. The remainder includes the current account deficit, taking into account a sharp narrowing as imports have contracted markedly.

To meet these financing needs, Pakistan will need to secure financing from the IMF and other multilateral and bilateral partners. Despite recent delays, Moody's assumes successful completion of the ninth review of the existing IMF programme, although this is not secured yet.

This would in turn catalyse financing from other multilateral and bilateral partners. At the same time, the government will also need to obtain the roll-over of the $3 billion China SAFE deposits and secure  $3.3 billion worth of refinancing from Chinese commercial banks for the rest of this fiscal year. Of this $3.3 billion, Pakistan has already received a deposit of $700 million from the China Development Bank on February 24.