Home / News / World /  Moody's downgrades cash-strapped Pakistan's rating, Islamabad contests

Moody's Investors Service has downgraded the Government of Pakistan's local and foreign currency issuer and senior unsecured debt ratings to Caa1 from B3. Moody's has also downgraded the rating for the senior unsecured MTN programme to (P)Caa1 from (P)B3. The outlook remains negative.

“The decision to downgrade the ratings to Caa1 is driven by increased government liquidity and external vulnerability risks and higher debt sustainability risks, in the aftermath of devastating floods that hit the country since June 2022. The floods have exacerbated Pakistan's liquidity and external credit weaknesses and vastly increase social spending needs, while government revenue is severely hit," Moody's said. 

“Debt affordability, a long-standing credit weakness for Pakistan, will remain extremely weak for the foreseeable future. The Caa1 rating reflects Moody's view that Pakistan will remain highly reliant on financing from multilateral partners and other official sector creditors to meet its debt payments, in the absence of access to market financing at affordable costs," the rating agency said. 

Pakistan said on Friday it "strongly contests" a ratings downgrade by agency Moody's.

"The rating action by Moody's was carried out unilaterally without prior consultations and meetings with our teams from the Ministry of Finance and State Bank of Pakistan," said a statement by the finance ministry on Twitter.

Moody's expects that Pakistan's IMF Extended Fund Facility (EFF) program will remain in place and provide an avenue for financing from the IMF and other multilateral and bilateral partners in the near term.

“The negative outlook captures risks around Pakistan's ability to secure required financing to fully meet its needs in the next few years. Elevated social and political risks compound the government's difficulty in implementing reforms, including revenue-raising measures, that would improve the country's fiscal position and alleviate liquidity stresses. The floods will also raise Pakistan's external financing needs, raising the risks of a balance of payments crisis. Pakistan's weak institutions and governance strength adds uncertainty around whether the country will maintain a credible policy path that supports further financing. The negative outlook also captures risks that, should a debt restructuring be needed, it may extend to private sector creditors," Moody's said.  (With Agency Inputs)

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