Moody’s Investors Service (Moody’s) Thursday downgraded the Government of Pakistan’s local and foreign currency issuer and senior unsecured debt ratings to Caa1 from B3 – after seven years. Moody’s has also downgraded the rating for the senior unsecured Medium Term Note (MTN) programme to (P) Caa1 from (P) B3. It should be noted that the outlook remains negative. Commenting on the development, Alpha Beta Core CEO Khurram Schehzad said: “This is surprising that we are downgraded despite having the International Monetary Fund (IMF) support, which indicates the risks still persisting despite having IMF on our side.” The bond credit rating service said 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,” a statement issued by the international body read.
The rating agency said that debt affordability, a long-standing credit weakness for Pakistan, “will remain extremely weak for the foreseeable future”.
“The Caa1 rating reflects Moody’s view that Pakistan will 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,” it said. “In particular, Moody’s expects that Pakistan’s IMF Extended Fund Facility (EFF) programme will remain in place and provide an avenue for financing from the IMF and other multilateral and bilateral partners in the near term.
