• Sunday, December 15, 2019

When and Why Moody downgraded Pakistan's rating to negative???

Discussion in 'Pakistan Economy' started by Shahzaz ud din, Dec 3, 2019.

  1. Shahzaz ud din

    Shahzaz ud din SENIOR MEMBER

    Messages:
    5,728
    Joined:
    Jun 12, 2017
    Ratings:
    +9 / 8,453 / -0
    Country:
    Pakistan
    Location:
    Canada
    When and Why Moody downgraded Pakistan's rating to negative???


    Moody’s Investors Service has downgraded the outlook on Pakistan’s rating to negative from stable and affirmed the ‘B3’ local and foreign currency long-term issuer and senior unsecured debt ratings.

    The decision to change the outlook to negative is driven by Pakistan’s heightened external vulnerability risk, added the ratings agency.

    “Foreign exchange reserves have fallen to low levels and, absent significant capital inflows, will not be replenished over the next 12-18 months,” stated Moody’s. “Low reserve adequacy threatens continued access to external financing at moderate costs, in turn potentially raising government liquidity risks.”

    A rating is Moody’s opinion of the credit quality of individual obligations or of an issuer’s general creditworthiness. Investors use ratings to help price the credit risk of fixed-income securities they may buy or sell.

    The development comes as a blow to Pakistan where economic managers are facing a headache in taming a bulging import bill that is eating away at the country’s foreign exchange reserves. From almost $19.46 billion held by the State Bank of Pakistan (SBP) in October 2016, foreign exchange reserves dropped 48.3% to $10.07 billion on June 8, 2018. The decline comes at a time when the import bill peaked to a record high of $5.8 billion in May, increasing the already swelling trade and current account deficits.

    The fragile external account position has already forced the SBP’s hand to let go off the Pakistani rupee that has now weakened over 15% in the last seven months after three separate rounds of devaluation.

    While the previous government seemed to have put all its eggs in the China-Pakistan Economic Corridor (CPEC) – the multi-billion dollar project encompassing infrastructure and energy sector – its debt affordability due to low tax revenue and failure to attract sufficient capital has made it a particularly vulnerable economy.

    World Bank sees Pakistan’s economy slowing next year

    Moody’s acknowledged Pakistan’s robust growth potential, but pointed out that these strengths balance the country’s fragile external payments position as well as the “very weak” government debt affordability.

    “The decision to affirm the B3 rating reflects Pakistan’s robust growth potential, supported by ongoing improvements in energy supply and physical infrastructure, which are likely to raise economic competitiveness over time.

    “These credit strengths balance Pakistan’s fragile external payments position and very weak government debt affordability owing to low revenue generation capacity.”

    The ratings agency also expects Pakistan’s external account to remain under significant pressure. “The coverage by foreign exchange reserves of imports will likely fall further from already low levels, while coverage of external debt payments due will weaken from currently adequate levels.

    “In turn, higher foreign currency borrowing needs, in combination with the low levels of foreign exchange buffers, risks weighing on the ability of the government to access external financing at moderate costs.”

    Continued growth in imports – driven by demand for capital goods under CPEC, higher fuel prices and robust household consumption – will prevent a significant narrowing of the current account deficit. Although exports have picked up since the start of 2018, growing around 10-15% year-on-year in US dollar terms, they only amount to half the level of goods imports.

    “Unless capital inflows increase significantly, Moody’s does not expect official foreign exchange reserves to replenish from their current low levels. Under baseline projection, the import cover of reserves will likely fall to around 1.7-1.8 months over the next fiscal year, below the adequacy level of three months generally recommended by the International Monetary Fund.”

    Tax amnesty scheme
    Moody’s said it expects the government’s tax amnesty scheme, which expires in June 2018, to have a modest impact of around $2-3 billion in foreign exchange inflows.

    “Second, the coverage by foreign exchange reserves of external debt payments due is weakening, pointing to further external vulnerability risks. With a significant rise in equity inflows unlikely, Moody’s expects Pakistan’s external financing gap to be met by increased foreign currency borrowing, mainly by the government.

    “While policymakers have started to respond to the external pressures, the policy tools available are politically challenging and would likely have a negative economic impact. Moody’s expects these measures to contribute to somewhat lower growth, at 5.2% on average over the next two fiscal years, from an expected 5.8% in FY18, and higher inflation at 7% in FY19, from around 4% in FY18. Further currency depreciation, higher policy rates, fiscal tightening, and/or higher regulatory duties would likely weigh further on growth and raise inflation above Moody’s current projections.

    “Like many of its South Asian neighbours, Pakistan is also vulnerable to climate change risk. The magnitude and dispersion of seasonal monsoon rainfall continues to influence agricultural sector growth and rural household consumption. As a result, both droughts and floods can create economic and social costs for the sovereign.”

    Moody’s said the negative outlook signals that a rating upgrade is unlikely. The outlook would likely be changed to stable if external vulnerability risks decreased materially and durably, including through policy adjustments that strengthen the external payments position. A resumption of fiscal consolidation pointing to a meaningful reduction in the debt burden would also be credit positive, added Moody’s.
    The Express Tribune - Breaking News, Latest Pakistan News Updates
    The Express Tribune provides Latest, Breaking News Updates from Pakistan & all over the world about Business, Life Style, Opinion, Sports and Entertainment
    [​IMG] tribune.com.pk

    Advertisement
     
  2. Chakar The Great

    Chakar The Great SENIOR MEMBER

    Messages:
    3,022
    Joined:
    Apr 25, 2018
    Ratings:
    +2 / 5,488 / -1
    Country:
    United Kingdom
    Location:
    Ireland
    Why share old newS?
     
  3. insight-out

    insight-out FULL MEMBER

    Messages:
    611
    Joined:
    Sep 16, 2009
    Ratings:
    +1 / 796 / -0
    Country:
    Pakistan
    Location:
    Pakistan
    I think the OP is trying to highlight the fact that the negative rating was during the last government. It would have been helpful if he had included the date of this story's publication, which is Jun 7, 2018. Though I do not see the value of repeating the same message over and over again. I think we all know that Zardari and Sharif did not manage the economy well. Let's move on.
     
    • Thanks Thanks x 2
  4. PakFactor

    PakFactor FULL MEMBER

    Messages:
    437
    Joined:
    Sep 30, 2019
    Ratings:
    +1 / 572 / -0
    Country:
    Pakistan
    Location:
    Pakistan
    Why?

    Jab Mood Acha Hota Ha, Rating Upar Jati Ha, Jab Mood Down Hota Ha Rating Down Jati Ha.
    Jab Zayada Acha Kam Hota Ha, Rating Zayada Upar Jati Ha, Jab Para Kam Hota Ha Rating Mazid Down Jati Ha.
     
  5. Baby Leone

    Baby Leone SENIOR MEMBER

    Messages:
    4,242
    Joined:
    Aug 25, 2011
    Ratings:
    +1 / 3,872 / -2
    Country:
    Pakistan
    Location:
    Pakistan
    WTF? MODS are sleeping?
     
  6. ziaulislam

    ziaulislam ELITE MEMBER

    Messages:
    11,063
    Joined:
    Apr 22, 2010
    Ratings:
    +11 / 8,905 / -2
    Country:
    Pakistan
    Location:
    United States
    Minus 1.4 crore educated central punjab population of matwalys and 30 lac sindhi jiyalas