NEW YORK/HONG KONG: Moody’s – one of the top global agency – maintained Pakistan long-term issuer rating at Caa3, saying, “While Pakistan is likely to meet its external debt obligations for the fiscal year ending June 2024, there is limited visibility regarding the sovereign’s sources of financing to meet its very high external financing needs after the current IMF Stand-By Arrangement ends in April 2024.”
At the same time, Moody’s Investors Service also mentioned that political risks were also high after “a highly controversial general elections”.
It said although a coalition government looked set to be formed, “there is high uncertainty around the newly-elected government’s willingness and ability to quickly negotiate a new IMF programme soon after the current one expires in April”.
At the same time, it noted that Pakistan’s rating would likely be upgraded if the government’s liquidity and external vulnerability risks decreased materially and durably.
There is a warning too about downgrading if Pakistan were to default on its debt obligations to private-sector creditors and the expected losses to creditors as a result of any restructuring were larger than consistent with a Caa3 rating.
According to Moody’s, Pakistan’s credit profile reflects the government’s very high liquidity and external vulnerability risks as the very low levels of foreign exchange reserves remain well below what is required to meet its very high external financing needs over the near to medium term.
The country’s very weak fiscal strength and elevated political risks also constrain its credit profile. At the same time, Pakistan’s credit profile takes into account its large economy and moderate growth potential, which contribute to its moderate economic strength.
Meanwhile, the liquidity and external vulnerability risks remain very high, even as the caretaker government has maintained economic stability and pushed through some reforms over the past few months, unlocking financing from the IMF and other multilateral and bilateral partners and resulting in a modest accumulation of foreign exchange reserves.
The coalition government’s electoral mandate may not be sufficiently strong to pursue difficult reforms that will likely be required by a successor programme. Until a new program is agreed to, Pakistan’s ability to secure loans from other bilateral and multilateral partners will be severely constrained.
BANK OF AMERICA SEES THINGS DIFFERENTLY
Earlier, the Bank of America (BofA) upgraded Pakistan global Eurobond to ‘overweight’ with a hope that international rating agencies would improve the country’s credit rating, which was negated by Moody’s, while citing a decrease in political uncertainty following the elections.
Elections-related political uncertainty is diminishing, as the remaining policy risks are largely the same as last year and have already been addressed once through the breakthrough with the IMF, it said.
“We note remaining political tail risks, as the market may closely monitor Cabinet appointments and evaluate key members based on their ability to meet IMF conditions,” the BofA strategist added.
