- Upgrade follows similar moves by S&P and Fitch.
- Foreign reserves expected to continue gradual improvement.
- Political uncertainty remains despite fiscal position gains.
Moody’s Ratings on Wednesday upgraded Pakistan’s credit rating with a stable outlook from Caa2 to Caa1, citing the country’s improved financial position supported by a loan from the International Monetary Fund (IMF).
Upgrade was secured after similar moves by S&P Global Ratings and Fitch Ratings in the past four months following repeated pledges by Prime Minister Shehbaz Sharif’s government to stay the course on fiscal consolidation and multiple reforms, it said in a statement.
Moody’s Ratings, in a statement, said that it has upgraded Pakistan’s local and foreign currency issuer and senior unsecured debt ratings to Caa1 from Caa2.
“We have also upgraded the rating for the senior unsecured MTN programme to (P)Caa1 from (P)Caa2. Concurrently, we changed the outlook for the Government of Pakistan to stable from positive.”
The upgrade to Caa1 reflects Pakistan’s improving external position, supported by its progress in reform implementation under the IMF Extended Fund Facility (EFF) programme, the agency said.
It added that foreign exchange reserves are likely to continue to improve, although Pakistan will remain dependent on timely financing from official partners.
Meanwhile, Moody’s said, the sovereign’s fiscal position is also strengthening from very weak levels, supported by an expanding tax base.
Its debt affordability has improved, but it remains one of the weakest among rated sovereigns. The Caa1 rating also incorporates the country’s weak governance and high political uncertainty.
The stable outlook also reflects balanced risks to Pakistan’s credit profile. On the upside, improvements in the debt service burden and external profile could be more rapid than we currently expect.
On the downside, there remains risks of delays in reform implementation required to secure timely official financing, which would in turn weaken Pakistan’s external position again.
The upgrade to Caa1 from Caa2 rating also applies to the backed foreign currency senior unsecured ratings for The Pakistan Global Sukuk Programme Co Ltd, Moody’s said.
The rating agency said that the associated payment obligations are, in its view, direct obligations of the Pakistani government. “Concurrently, we changed the outlook for The Pakistan Global Sukuk Programme Co Ltd to stable from positive, mirroring the stable outlook on the Government of Pakistan.”
Concurrent to today’s action, Moody’s has also raised Pakistan’s local and foreign currency country ceilings to B2 and Caa1 from B3 and Caa2, respectively.
The two-notch gap between the local currency ceiling and sovereign rating is driven by the government’s relatively large footprint in the economy, weak institutions, and high political and external vulnerability risk.
The two-notch gap between the foreign currency ceiling and the local currency ceiling reflects incomplete capital account convertibility and relatively weak policy effectiveness. It also takes into account risks of transfer and convertibility restrictions being imposed.
