Observer Report
Islamabad
Credit rating agency Moody’s on Saturday has upgraded Pakistan’s outlook from ‘under review for downgrade’ to ‘stable,’ while maintaining a B3 rating.
The agency in its latest report also confirmed the B3 foreign currency senior unsecured ratings for The Third Pakistan International Sukuk Co Ltd. The associated payment obligations are, in Moody’s view, direct obligations of the Government of Pakistan.
The agency noted that the ‘review for downgrade’ status had reflected Moody’s assessment that the country’s participation in the G20 Debt Service Suspension Initiative raised the risk that private sector creditors would incur losses.
“In the last few weeks, Moody’s has considered the evidence of implementation of DSSI for a range of rated sovereigns and statements by G20 officials,” it said.
“While Moody’s continues to believe that the ongoing implementation of DSSI poses risks to private creditors, the decision to conclude the review and confirm the rating reflects Moody’s assessment that, at this stage, for Pakistan, those risks are adequately reflected in the current B3 rating,” it added.
The stable outlook reflects Moody’s view that the pressures Pakistan faces in the wake of the coronavirus shock and prospects for its credit metrics in general are likely to remain consistent with the current rating level.
“In particular, while Moody’s sees downside risks to Pakistan’s economy because of movement and activity restrictions related to the pandemic, which would in turn intensify the government’s 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,” it noted.
“While continued spread of the virus poses downside risks to the economy and government finances, financial and technical support from development partners mitigates external vulnerability and liquidity risks,” it said.
Moody’s also noted the Pakistani government’s commitment to the International Monetary Fund’s Extended Fund Facility, which it expects will cover its external financing needs over the next 12-18 months and provide an anchor for ongoing fiscal reforms.
The credit agency also added it expects the country’s economic growth to be positive in fiscal 2021 (ending June 2021) from a recession in fiscal 2020, but still low at around 1-2%.
