ISLAMABAD – Amid the worsening economic situationn, Moody’s Investor Service cut Pakistan’s sovereign credit rating on Tuesday by one notch to Caa3 from Caa1, citing increased government liquidity and external position risks.
The country of over 220 million is facing the worst economic crisis amid risks of a balance of payments crisis as Moody’s Investors Service downgraded Pakistan’s local and foreign currency issuer and senior unsecured debt ratings.
The credit company flagged fragile liquidity and external position significantly which it said raises default risks to a level consistent with a Caa3 rating. Furthermore, Moody’s downgraded the rating for the senior unsecured MTN programme to (P)Caa3 from (P), and changed the outlook to stable from negative.
In a statement, it said Pakistan’s foreign exchange reserves have plunged to extremely low levels, far lower than necessary to cover its import needs and external debt obligations over the immediate and medium term.
It further cited weak governance and heightened social risks that impede the country’s ability to implement the range of policies that would secure large amounts of financing and decisively mitigate risks to the balance of payments.
Moody’s maintained that IMF may help cash-strapped country to cover their immediate needs, adding that stable outlook depicts assessment that the pressures that South Asian nation faces are consistent with a Caa3 rating level, with broadly balanced risks.
“However, in the current extremely fragile balance of payments situation, disbursements may not be secured in time to avoid a default,” it further added.
The agency mentioned that downgrading also applies to the backed foreign currency senior unsecured ratings for the Pakistan Global Sukuk Programme Co Ltd.
Generally, the New York based agency said Islamabad’s external financing needs for the rest of the fiscal year ending June 2023 to be around $11 billion, including the outstanding $7 billion external debt payments due.
The South Asian nation will need to garner funds from the International Monetary Fund and partners. It however added that the liquidity and external position next year will remain extremely fragile.
