Moody\u2019s Investor Service cut Pakistan\u2019s sovereign credit rating on Thursday by one notch to Caa1 from B3, citing increased government liquidity and external vulnerability risks, following the devastating floods that hit the country earlier this year.
\nThe floods, caused by abnormal monsoon rains and glacial melt, have submerged huge swathes of the South Asian country and killed nearly 1,700 people, most of them women and children.
\nThe floods will also raise Pakistan\u2019s external financing needs, raising the risks of a balance of payments crisis, according to the rating agency.
\nMoody\u2019s outlook on Pakistan remained unchanged at negative.
\n\u201cThe decision to downgrade the ratings to Caa1 is driven by increased government liquidity and external vulnerability risks and higher debt sustainability risks, in the aftermath of devastating floods that hit the country since June 2022. The floods have exacerbated Pakistan\u2019s liquidity and external credit weaknesses and vastly increase social spending needs, while government revenue is severely hit,\u201d it said in a statement.
\nIt stated that \u201cdebt affordability and a long-standing credit weakness for Pakistan, will remain extremely weak for the foreseeable future\u201d.
\nThe Caa1 rating reflected Moody\u2019s view that Pakistan would remain highly reliant on financing from multilateral partners and other official sector creditors to meet its debt payments, in the absence of access to market financing at affordable costs.
\n\u201cIn particular, Moody\u2019s expects that Pakistan\u2019s IMF Extended Fund Facility (EFF) program will remain in place and provide an avenue for financing from the IMF and other multilateral and bilateral partners in the near term.\u201d
\nThe rating agency explained that the negative outlook captured risks around the country\u2019s ability to secure required financing to fully meet its needs in the next few years.
\n\u201cElevated social and political risks compound the government\u2019s difficulty in implementing reforms, including revenue-raising measures, that would improve the country\u2019s fiscal position and alleviate liquidity stresses.
\n\u201cThe floods will also raise Pakistan\u2019s external financing needs, raising the risks of a balance of payments crisis. Pakistan\u2019s weak institutions and governance strength add uncertainty around whether the country will maintain a credible policy path that supports further financing. The negative outlook also captures risks that, should a debt restructuring be needed, it may extend to private sector creditors,\u201d the statement said.
\nMoody\u2019s said the Caa1 rating also applied to the backed foreign currency senior unsecured ratings for The Third Pakistan International Sukuk Co Ltd and The Pakistan Global Sukuk Programme Co Ltd.
\nThe associated payment obligations are, in Moody\u2019s view, direct obligations of the Government of Pakistan, it added.
\n\u201cConcurrent to today\u2019s action, Moody\u2019s has lowered Pakistan\u2019s local and foreign currency country ceilings to B2 and Caa1 from B1 and B3, respectively.
\n\u201cThe two-notch gap between the local currency ceiling and sovereign rating is driven by the government\u2019s relatively large footprint in the economy, weak institutions, and relatively high political and external vulnerability risk,\u201d the statement said.
\nIt also stated that the two-notch gap between the foreign currency ceiling and the local currency ceiling reflected the incomplete capital account convertibility and relatively weak policy effectiveness, which pointed to material transfer and convertibility risks notwithstanding moderate external debt.<\/p>\n","protected":false},"excerpt":{"rendered":"
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