Moody’s changes Pakistan’s outlook from negative to stable

Islamabad, March 1,2023: Moody’s Investors Service has changed Pakistan’s outlook from negative to stable while downgrading its local and foreign currency issuer and senior unsecured debt ratings from “Caa1” to “Caa3” — � the lowest in three decades –, saying the countrys increasingly fragile liquidity “significantly raises default risks”.

The US-based agency released its ratings on Tuesday, reports Xinhua news agency.

The decision to downgrade the ratings is driven by Moody’s assessment that Pakistan’s increasingly fragile liquidity and external position significantly raises default risks to a level consistent with a “Caa3” rating.

“In particular, the country’s foreign exchange reserves have fallen to extremely low levels, far lower than necessary to cover its imports needs and external debt obligations over the immediate and medium term,” Moody’s said in its ratings.

The stable outlook reflects assessment that the pressures Pakistan faces are consistent with a “Caa3” rating level, with broadly balanced risks, according to the Moody’s.

The development comes as the Shehbaz Sharif-led government has been in talks with the International Monetary Fund (IMF) to secure a $1 billion loan, which has been pending since late last year over policy issues, reports Dawn news.

It is part of a stalled $6.5 billion bailout package, originally approved in 2019.

A payment by the IMF may help to cover Pakistan’s immediate needs, Moody’s said, but warned that “weak governance and heightened social risks impede Pakistan’s ability to continually implement the range of policies that would secure large amounts of financing”.

Pushed to the brink by last year’s devastating floods, Pakistan has reserves barely enough for three weeks of essential imports, while general elections are due by November.