Moody’s retains Pakistan’s rating with stable outlook

NEW YORK: Moody’s Investors Service has confirmed Pakistan’s B3 local and foreign currency issuer and unsecured debt ratings with a stable outlook.

On 14^th May 2020, Moodys had decided to review Pakistan for downgrade but had retained the ratings. This assessment reflected participation in the G20 Debt Service Suspension Initiative (DSSI) which raised risks that private-sector creditors would incur losses.

In the last few weeks, Moody’s said it considered the evidence of implementation of DSSI for a range of countries and statements by G20 officials.  Moody’s said the decision to conclude the review and confirm the rating reflects assessment that for Pakistan, those risks are adequately shown in the current B3 rating.

Moody’s said it remains unclear what influence is being applied to Pakistan to treat private creditors in a comparable manner to official sector creditors. It said any related changes in risks to private creditors would be reflected in further rating announcements.

The stable outlook reflects Moody’s view that the pressures Pakistan faces in the wake of the coronavirus shock and prospects for credit metrics in general are likely to remain consistent with the current rating level.

Moody’s sees downside risks to Pakistan’s economy due to movement and activity restrictions related to the pandemic which would in turn intensify fiscal challenges, strong support from development partners including for external financing, coupled with effective macroeconomic policies started ahead of the crisis, contain external vulnerability and liquidity risks.

Despite the risks and challenges, Pakistan’s Ba3 local currency bond and deposit ceilings remain unchanged. The B2 foreign currency bond ceiling and the Caa1 foreign currency deposit ceiling are also unchanged. The short-term foreign currency bond and deposit ceilings remain unchanged at “not-prime”.

Moody’s said the coronavirus pandemic is weighing on economic activity in Pakistan, resulting in lower tax revenue, a wider fiscal deficit, and a higher debt burden for the government

The government’s commitment to its current International Monetary Fund (IMF) loan programme continues to unlock a large financial envelope that Moody’s expects will cover its external financing needs over the next 12-18 months and provides an anchor for ongoing fiscal reforms.

The slow economic recovery will weigh on government revenue, keeping the fiscal deficit wide at around 8-8.5% of GDP in fiscal 2021 under Moody’s projections, at similar levels compared to the fiscal year. The risks to the economy and government finances are to the downside, particularly if more stringent measures are implemented to curb the spread of the virus domestically