Moody’s slices Pakistan

Moody’s Investors Service said it downgraded the government of Pakistan's local-and foreign-currency issuer and senior unsecured debt ratings to Caa3 from Caa1. The agency also cut the rating for the senior unsecured MTN program to (P)Caa3 from (P)Caa1 and changed the outlook to stable from negative.

“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.

“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 program 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,” Moody’s said in a press release.

The stable outlook reflects the view that Pakistan faces challenges consistent with a Caa3 rating level, with broadly balanced risks, Moody’s noted.

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