KARACHI: Moody’s Investors Service has downgraded Pakistan’s rating to negative from stable. A statement released by the credit rating agency in the evening on Wednesday stated that the decision to change the outlook to negative was driven by heightened external vulnerability risk as ongoing balance of payment pressures erode foreign exchange buffers.

The rating agency expects the government’s tax amnesty scheme — due to expire on June 30 — to have a modest impact of around $2-3 billion in foreign exchange inflows.

Moody’s said that the foreign exchange reserves have fallen to low levels and in the absence of significant capital inflows ‘would will not be replenished over the next 12-18 months’.

Rating of B3 reaffirmed for local and foreign currency debt

“Low reserves adequacy threatens continued access to external financing at moderate costs, in turn potentially raising government liquidity risks”.

Moody’s affirmed the B-3 local and foreign currency long-term issuer and senior unsecured debt ratings. It said that the decision to affirm the B3 rating reflects Pakistan’s robust growth potential, supported by ongoing improvements in the energy supply and physical infrastructure, which are likely to raise economic competitiveness over time. “These credit strengths balance Pakistan’s fragile external payment position and very weak government debt affordability owing to low revenue generation capacity”.

Concurrently, Moody’s affirmed the B3 foreign currency senior unsecured ratings for the Second Pakistan International Sukuk Co. Ltd. and the Third Pakistan International Sukuk Co. Ltd. “The associated payment obligations are, in our view, direct obligations of the government of Pakistan,” Moody’s argued.

Pakistan’s Ba3 local currency bond and deposit ceilings remain unchanged. There was no change in the B2 foreign currency bond ceiling and the Caa1 foreign currency deposit ceiling.

The short-term foreign currency bond and deposit ceilings also remain unchanged at Not-Prime. “These ceilings act as a cap on the ratings that can be assigned to the obligations of other entities domiciled in the country,” Moody’s concluded.

Published in Dawn, June 21st, 2018