Pakistan’s Rating Changed To Negative By Moody’s
Pakistan’s Rating Changed To Negative By Moody’s: US credit ratings agency Moody’s changed Pakistan’s rating outlook to negative from stable on “heightened external vulnerability risk”.
“Foreign exchange reserves have fallen to low levels and, absent significant capital inflows, will not be replenished over the next 12-18 months,” Moody’s said in a statement. “Low reserve adequacy threatens continued access to external financing at moderate costs, in turn potentially raising government liquidity risks.”
The country’s current account deficit widened to 5.5 percent of GDP in the July-May period, much above the annual target of 4.4 percent.
Moody’s expected current account deficit to slightly narrow to around 4 to 4.3 percent of GDP over the next few years compared to an average deficit of around 1.5 percent between FY2014 and FY2016.
Moody’s said continued growth in imports of goods – driven by demand for capital goods under the China-Pakistan Economic Corridor project, higher fuel prices and robust household consumption – will prevent a significant narrowing of the current account deficit.
Though it assumed continued strong growth in exports, “this will not be enough to narrow the trade gap”. Moody’s said the negative outlook signals that a rating upgrade is unlikely.
“Expectations that government debt would continue to rise markedly, with a related deterioration in debt affordability from already weak levels, would also put downward pressure on the rating,” it added.
Moody’s, however, reaffirmed the B3 local and foreign currency long-term issuer and senior unsecured debt ratings for Pakistan.
Moody’s expected the government’s tax amnesty scheme, which expires in June, to have a modest impact of around $2-3 billion in foreign exchange inflows.
It said rupee depreciation, interest rate hike and regulatory duties are likely to contribute to somewhat lower growth, “at 5.2 percent on average over the next two fiscal years, from an expected 5.8 percent in FY2018, and higher inflation at 7 percent in FY2019 from around 4 percent in FY2018”. Moody’s said weak revenue generation capacity is a main credit constraint for the country.
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