ISLAMABAD: International credit rating agency Moody's cut Pakistan's sovereign credit rating on Thursday by one notch to Caa1 from B3, citing increased government liquidity, external vulnerability risks and higher debt sustainability risks as the main reasons.
The rating agency's outlook on Pakistan remained unchanged at negative. In a statement, Moody’s said floods have exacerbated Pakistan's liquidity and external credit weaknesses. It added that the natural calamity has also vastly increased the country’s social spending needs, while government revenue is “severely hit.”
“Debt affordability, a long-standing credit weakness for Pakistan, will remain extremely weak for the foreseeable future,” it added.
Moody’s further said the Caa1 rating reflects Pakistan would remain “highly reliant” on financing from multilateral partners and other official sector creditors to meet its debt payments.
The rating agency also lowered Pakistan's real GDP growth to 0-1% for the fiscal year 2023 (the year ending June 2023) from a pre-flood estimate of 3-4%.
"The floods will affect all sectors, with the impact likely more acute in the agriculture sector, which makes up about one-quarter of the economy," it said. "As the economy recovers from the floods, Moody's expects growth to pick up next year but stay below trend."
Pakistan’s finance ministry reacted sharply to Moody’s updated rating, saying it was done unilaterally without prior consultations and meetings with Pakistan’s finance team and the State Bank of Pakistan (SBP) officials.
“After a regular stock take of the economic and fiscal conditions, the Ministry of Finance seeks to inform that government policies over the last few months have helped in fiscal consolidation,” the finance ministry said in a statement.
It said Pakistan has adequate liquidity and financing arrangements to meet its external liabilities, adding that the South Asian country has secured the International Monetary Fund’s (IMF) programme.
“The [IMF programme’s] continuity is based on the confirmation and confidence in the country’s ability to maintain the fiscal discipline, debt sustainability and its ability to discharge all its domestic and external liabilities,” the ministry said.
The finance ministry concluded by saying that it feels the downgrading of Pakistan’s rating is “not truly reflective of Pakistan’s macroeconomic conditions.”