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Moody's gives Pakistan B3 rating, says outlook 'stable'

Discussion in 'Pakistan Economy' started by RangeMaster, May 9, 2017.

  1. RangeMaster

    RangeMaster FULL MEMBER

    Dec 25, 2016
    +1 / 3,830 / -0
    On account of strong economic growth and reduction in fiscal deficits, credit rating agency Moody's, in its annual credit analysis of Pakistan, gave the government a B3 rating with a stable outlook.

    "Strong growth performance, fiscal deficit reduction and improved inflation dynamics underpin the Government of Pakistan's B3 rating with a stable outlook," says Moody's Investors Service.

    "Credit challenges include a relatively high general government debt burden, weak physical and social infrastructure, a fragile external payments position, and high political risk," added the report casting attention on the negative aspects.

    The government's very narrow revenue base weighs on debt affordability, it said and added that exports and remittance inflows have slowed and capital goods imports have risen, resulting in renewed pressure on the external account.

    Moody's noted that prospects for growth have improved following Pakistan's successful completion of its three-year Extended Fund Facility (EFF) programme with the International Monetary Fund (IMF) in September 2016 and the launch of the China-Pakistan Economic Corridor (CPEC) project in 2015.

    Moody's also noted that the implementation of the CPEC project has the potential to transform the Pakistani economy by relieving infrastructure bottlenecks, and stimulating both foreign and domestic investment.

    However, headwinds to further fiscal consolidation and renewed pressure on the external account present downside risks to the rating, said the ratings agency.

    "Since 2013, implementation of economic reforms and increased foreign investment flows have contributed to macroeconomic stability and higher GDP growth. However, government debt remains elevated and pressure on the external account continues. " said William Foster, a Vice President and Senior Credit Officer at Moody's.

    According to the document, the stable outlook represents balanced upside and downside risks to the sovereign credit profile.

    Support from multilateral and bilateral lenders has also bolstered Pakistan's foreign currency reserves and fostered progress on economic reforms.
  2. Trisonics

    Trisonics BANNED

    Mar 6, 2009
    +1 / 2,523 / -14

    1. Moody’s Investors Service has predicted that Pakistan’s external debt will grow to $79 billion by June this year, higher than initial estimates suggested, and the country’s weak fiscal strength will weigh in on its ability to afford the ever growing debt burden.
    2. Moody’s assessed Pakistan’s fiscal strength at negative “(-) Very Low”, which it said was hindering debt affordability and increases the debt burden. It said Pakistan’s limited tax base restricts its fiscal space, while low savings and shallow capital markets hinder stable domestic financing of sizeable budget deficits.
    3. Very Low (-)” score is below the indicative score of “Very Low”, which reflects that the material foreign currency portion of outstanding government debt (about 30% of total debt) exposes the government’s balance sheet to greater foreign exchange rate risks than currently captured by scorecard metrics,
    4. It said that large fiscal deficits and a reliance on short-term debt have contributed to very high gross borrowing requirements, which is a key rating constraint. At 32% of GDP, Pakistan’s gross borrowing need in 2017 is the largest among all rated sovereigns, after Egypt.
    5. Debt affordability metrics, which include interest payments as a percentage of revenues and GDP, have been high in Pakistan relative to the median for B-rated sovereigns, which is a key constraint on the sovereign credit rating.