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Moody’s cuts Pakistan’s rating to Caa1 citing increased govt liquidity and external vulnerability risks
Dawn.com Published October 6, 2022 Updated about a minute ago
0Moody’s Investor Service cut Pakistan’s sovereign credit rating on Thursday by one notch to Caa1 from B3, citing increased government liquidity and external vulnerability risks, following the devastating floods that hit the country earlier this year.
The floods, caused by abnormal monsoon rains and glacial melt, have submerged huge swathes of the South Asian country and killed nearly 1,700 people, most of them women and children.
The floods will also raise Pakistan’s external financing needs, raising the risks of a balance of payments crisis, according to the rating agency.
Moody’s outlook on Pakistan remained unchanged at 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,” the statement said.
It stated that “debt affordability, a long-standing credit weakness for Pakistan, will remain extremely weak for the foreseeable future”.
The Caa1 rating reflected Moody’s view that Pakistan would 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.
“In particular, 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.”
