Moody's downgrades Pakistan with 'C rating' after seven years
Oct 08, 2022
Islamabad [Pakistan], October 8 : The New York-based credit rating agency Moody's Investors Service has 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, local media reported.
"The outlook remains negative," the New York-based rating agency said amid the devastation floods in Pakistan, Dawn reported.
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 (March 2015).
Pakistan strongly contested Moody's downgrade decision, saying it was taken unilaterally, was based on premature data and did not depict the true picture due to information gaps and contradictions.
In June, Moody's also downgraded Pakistan's outlook to negative from stable amid a delay in a deal with the International Monetary Fund (IMF) for an economic bailout.
"The decision to change the outlook to negative is driven by Pakistan's heightened external vulnerability risk and uncertainty around the sovereign's ability to secure additional external financing to meet its needs," Dawn newspaper reported citing Moody's statement.
Meanwhile, Pakistan's current account deficit widened to USD 13.8 billion during the first 10 months (July to April) of the current fiscal year, compared to a deficit of USD 543 million a year earlier, Dawn reported.
According to data from the IMF, Pakistan's foreign exchange reserves have declined to USD 9.7 billion at the end of April, which can only cover less than two months of imports. This compares with the USD 18.9 billion of reserves at the end of July last year.
Moody's projected the current account deficit to come in at 4.5-5 per cent of GDP for the ongoing fiscal year, slightly wider than the government's expectations.
Moreover, the next elections are due in Pakistan by the middle of 2023. In Moody's view, political parties will find it difficult to continually enact significant revenue-raising measures in the run-up to the elections, especially in a high inflation environment.
