According to a global credit rating agency, Moody’s Ratings, on Wednesday, acknowledged Pakistan’s recent macroeconomic improvement, upgrading Pakistan’s local currency issuer rating from Caa3, as well as its senior unsecured bond rating, from Caa3 to Caa2.
As part of the upgrade, we have also revised the rating of the senior unsecured MTN programme to (P)Caa2 from (P)Caa3. In the same statement, the rating agency announced that the outlook for the Government of Pakistan has been changed from stable to positive,” it said.
It is thought that the upgrade to Caa2 is the result of Pakistan’s improving macroeconomic conditions and moderate improvements in government liquidity and external positions from very weak levels.
In light of these findings, Moody’s has assigned Pakistan a Caa2 rating, which reflects a reduction in the country’s default risk. In light of the staff-level agreement reached on 12 July 2024 between the Pakistani government and the International Monetary Fund (IMF) regarding a $7 billion Extended Fund Facility (EFF) for a 37-month period, there is now more certainty on Pakistan’s sources of external financing.
According to the rating agency, the IMF Executive Board should approve the Pakistan loan deal within the next few weeks according to the projections made by the agency.
A report published by the Pakistani government said that the country’s foreign exchange reserves have almost doubled since June 2023, but they remain below what the government considers necessary to cover Pakistan’s external financing needs.
The country remains dependent on timely financing from its official partners in order to fully meet its obligations under its external debt conditions, according to Moody’s.
There is a warning from the agency that the “Caa2 rating continues to reflect Pakistan’s very weak ability to pay back its debt, which contributes to high debt sustainability risks.”.
According to Moody’s, “in the next two to three years, interest payments will absorb approximately half of the government’s revenue,” it said, adding, “the Caa2 rating of the country also reflects the country’s poor governance and high level of political uncertainty.”
Furthermore, the report emphasizes that the positive outlook is a result of a skewed balance of risks pointing in the right direction, while simultaneously capturing the possibility of the government being able to lower its liquidity and external vulnerability risks further, and achieving a better fiscal position than they are expecting at present, supported by the IMF.
It is believed that Pakistan will not be included on the agenda for the Executive Board meeting scheduled to take place from September 4, 2024 onwards, according to sources within the IMF.
In spite of this, political sources told Geo News that the government is confident that the country will obtain approval from the IMF next month in order to secure a $7 billion bailout package. The Pakistani government and the IMF reached an agreement in July regarding a loan programme that will last 37 months.
An important point that Moody’s emphasized was the possibility of increasing the government’s revenue base through the implementation of sustained reforms, including revenue-raising measures, as well as improving the country’s ability to service its debt.
It is also believed that Pakistan would benefit from a record of consistently meeting its IMF reviews on time, which will enable it to continue to access financing from official partners, sufficient to meet its external debt obligations and support further rebuilding of its foreign exchange reserves, according to the agency.
The Pakistan Global Sukuk Programme Co Ltd informed the SEC that it has been upgraded to Caa2 from Caa3 in its credit rating for its backed foreign currency senior unsecured ratings.
A majority of payment obligations associated with the Pakistan Global Sukuk Programme Ltd were, in their view, directly owed to the Government of Pakistan, adding that The Pakistan Global Sukuk Programme was expected to see positive results in the future.
It is also necessary to note that, concurrently with today’s action, the Pakistani currency and local currency country ceilings have also been raised to B3 and Caa2, respectively, from Caa1 and Caa3.
As explained by Moody’s, there is a two notch difference between the local currency ceilings and sovereign ratings as the government has a relatively large footprint in the economy, weak institutions, and there is a high degree of political and external vulnerability.
According to the agency, more than two notch of difference between the local currency ceiling and the foreign currency ceiling can be attributed to the inability of the foreign currency to convert into local currency and the relative weakness of policy effectiveness in the country.
Timenews1 provided that news.
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