Rating agency Moody’s Investor Service has downgraded cash-strapped Pakistan’s outlook from stable to negative, citing ‘heightened external vulnerability’ and uncertainty around securing external financing to meet the country’s needs, a media report has said.
“Moody`s assesses that Pakistan’s external vulnerability risk has been amplified by rising inflation, which puts downward pressure on the current account, the currency and already thin foreign exchange reserves, especially in the context of heightened political and social risk,” the statement said.
Moody’s report added that the country’s ‘weak institutions and governance strength’ had added uncertainty around the future direction of macroeconomic policy, including whether Pakistan would complete the IMF Extended Fund Facility (EFF) programme and maintain a credible policy path that supports further financing.
However, it affirmed the ‘B3’ local and foreign currency long-term issuer and senior unsecured debt ratings.
Watch | Moody’s lowers Pakistan outlook to negative over IMF delay
“The decision to affirm the B3 rating reflects Moody’s assumption that, notwithstanding the downside risks mentioned above, Pakistan will conclude the seventh review under the IMF EFF programme 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,” it said.
Moody’s affirmed that Pakistan will be able to close its financing gap for the next couple of years.
“The B3 rating also incorporates Moody`s assessment of the scale of Pakistan’s economy and robust growth potential, which will provide the economy with some capacity to absorb shocks.
“These credit strengths are balanced against Pakistan`s fragile external payments position, weak governance and very weak fiscal strength, including very weak debt affordability,” the statement said.
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