Moody's downgrades Pakistan's economic outlook to negative, gives 'C rating' after seven years

The New York-based credit rating company Moody's Investors Service has lowered Pakistan's local and foreign currency, senior unsecured debt, and rating from B3 to Caa1due to heightened risks associated with government liquidity, external vulnerability, and debt sustainability.

In the midst of Pakistan's devastating floods, the New York-based rating agency stated that "the outlook remains negative," according to Dawn. For the foreseeable future, Pakistan's credit situation will continue to be very poor due to its long-standing issue with debt affordability.

After seven years, the country is now in the C-category due to the relegation (March 2015).

Pakistan vehemently disagreed with Moody's downgrade decision, claiming it was made unilaterally, was based on unreliable data, and did not accurately reflect the situation because of discrepancies and gaps in the available data.

Due to a delay in a contract with the International Monetary Fund (IMF) for an economic bailout, Moody's also cut Pakistan's outlook in June from stable to negative.

Dawn newspaperquoted a statement from Moody's, "The decision to change the outlook to negative is driven by Pakistan's heightened external vulnerability risk and uncertainty around the sovereign's ability to secure additional external financing to meet its needs."

During the first 10 months (July to April) of the current fiscal year, Pakistan's current account deficit increased to USD 13.8 billion from a deficit of USD 543 million a year earlier.

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The IMF reports that Pakistan's foreign exchange reserves decreased to USD 9.7 billion at the end of April, which is only enough to pay for imports for less than two months. In comparison, at the end of July of the previous year, there were USD 18.9 billion in reserves.

For the current fiscal year, Moody's predicted that the current account deficit would be 4.5–5 per cent of GDP, somewhat more than the government had anticipated.

In addition, Pakistan's next elections are scheduled for the middle of 2023. According to Moody's, it will be challenging for political parties to consistently execute major revenue-raising measures in the lead-up to the elections, especially in an environment with rising inflation.

(with inputs from agencies)

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