KARACHI:Moody’s Investors Service has downgraded Pakistan’s government’s local and foreign currency credit rating from Caa1 to Caa3, citing a rise in the risk of default on foreign debt repayment and a decrease in Pakistan’s foreign exchange reserves.
However, the global rating agency said in a statement on Tuesday that it had “changed the outlook to stable from negative.”
Additionally, the agency has downgraded the senior unsecured MTN program’s rating from (P)Caa1 to (P)Caa3.
It stated, “Moody’s assessment that Pakistan’s increasingly fragile liquidity and external position significantly raises default risks to a level consistent with a Caa3 rating is the driving force behind the decision to downgrade the ratings.”
Read also: Pakistan’s credit rating is downgraded by Moody’s. In particular, the country’s foreign exchange reserves have dropped to very low levels, far below what it needs to cover its import requirements and obligations related to its external debt in the short and medium term.
“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,” despite the fact that the government is implementing some tax measures to meet the conditions of the IMF program and a disbursement from the IMF may assist in covering the country’s immediate needs.
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The default risk could be reduced to a level consistent with a higher rating if significant external financing became available very soon, such as through the disbursement of the next tranches under the current IMF program and related financing.”
However, disbursements may not be secured in time to prevent a default in the current extremely fragile balance of payments situation. Additionally, Moody’s noted that beyond the duration of the current IMF program, which expires in June 2023, there is very little information available regarding Pakistan’s sources of financing for its significant requirements for external payments.
