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Moody’s downgrades Pakistan’s sovereign credit rating to lowest ever
Move surprises analysts; most local observers see macroeconomic trends stabilising.
Move surprises analysts; most local observers see macroeconomic trends stabilising.
KARACHI: In a move that has surprised most local analysts, the credit rating agency Moody’s has downgraded Pakistan’s sovereign rating to its lowest level ever, citing a worsening current account balance, foreign exchange reserves, and looming payments to the International Monetary Fund.
The New York-based Moody’s – one of the three largest credit rating agencies in the world – downgraded Pakistan’s foreign and local currency bond ratings from B3 to Caa1, equal to the lowest rating Pakistan has ever gotten.
In a note issued on Friday, Moody’s Singapore-based analyst Thomas J Byrne listed four major reasons for the downgrade: “a deterioration in Pakistan’s balance of payments over the past year, the looming large repayments to the IMF, the dwindling level of official foreign-exchange reserves, and the institutional weakness stemming from political instability and constrained government finances.” The ratings agency also issued a negative outlook for the country, meaning that a rating upgrade is unlikely in the medium term.
Yet many local economists and analysts questioned the move. In a note issued to clients on Friday afternoon, KASB Securities expressed incredulity at the fact that Moody’s has downgraded Pakistan to a rating level lower than the one the country had during the depths of the 2008 financial crisis.
“We are a little surprised by the timing of this downgrade,” said Imtiaz Gadar, an economist at KASB Securities. “If this announcement had come two months ago, we would have understood why. Oil prices were high and relations with the US were at a low point. But now, oil prices have dropped 20% and relations with the US have improved. So this comes as a bit of a surprise.”
The last time Moody’s downgraded Pakistan to a level this low was on October 23, 1998, soon after the country had tested six nuclear weapons. Indeed, the agency had immediately downgraded Pakistan from B2 to B3 on the very day that Pakistan conducted five nuclear weapons tests: May 28, 1998.
After those two back-to-back ratings downgrades, Pakistan’s ratings – according to Moody’s, at least – stayed at Caa1 until February 13, 2002, when it was upgraded again to B3. This was done shortly after Pakistan agreed to join the US-led coalition in what was then referred to as the “war against terror” and began receiving large amounts of financial assistance from Washington.
Moody’s highest rating ever for Pakistan was B1, which lasted between November 2006 to May 2008. The country was downgraded to B3 in October 2008, shortly before the IMF rescue package for Pakistan came into effect.
All of these ratings, however, classify Pakistani debt as “junk”. In order to jump to the lowest level of investment grade, Pakistan’s debt rating would have to go up seven notches.
Analysts at Burj Capital and KASB Securities expressed surprise that the recent improvement in relations between Islamabad and Washington – which is likely to result in the resumption of Coalition Support Funds payments – has not been taken into consideration.
“It is almost as if [Byrne] had prepared a report with a downgrade, and when the situation improved, he ignored it, added only one cursory reference to it [resumption of CSF payments] and sent out the report anyway,” said Gadar.
Moody’s offices in New York and Singapore did not respond to requests by The Express Tribune for comment.
Standard & Poor’s, the only other global rating agency that assesses Pakistani sovereign risk, has not changed its rating for Pakistan – a B- (equivalent of a B3 from Moody’s) – since August 24, 2009. S&P’s outlook on Pakistan’s rating is stable, which means it is unlikely to downgrade the country anytime soon. Fitch, the third major agency, does not rate Pakistan.
Published in The Express Tribune, July 14th, 2012.
Reader Comments (58)
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Blessings of democracy.Musharraf we miss you.
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I recall reading an article on ET indicating that you were already at “junk bond” level — not sure what’s below that?
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It is a global conspiracy against Pakistan. Let us take suo motu against it ASAP. All conspiracies against Pakistan must be crushed with an iron hand. We don’t give a damn about these western agencies.Recommend
@Mirza:
Or we could just carry on supporting the current government no matter what . After all the report said dwindling not doomed ——yet. so Jiye Zardari.
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@Mirza:
grow up ,its ur decision making faults in economic front which leads ur nation to this position ,if u continue to ignore it and live in conspiracy theories then the world will end for u guys.
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@Cautious:
By the way, I wouldnt be too chipper: you are already on negative watch with S&P which is far more powerful than Moody’s.
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@droid5:
Take a chill pill dear. We are losing credit rating not the sarcasm or sense of humor?
Regards,
MirzaRecommend
@droid5: Mirza was bieng sarcastic.
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To be fair, quite a few European countries and (in a separate ranking) Global Banks have been downgraded. Reflection of tough times we all are in – not just Pakistan.Even Chinese growth rate has come down to 7.6% and Indians are clocking in 5-6%.
However, ignoring signs or rating downgrade would hurt economy. This is just a barometer. Time for Pakistan to tighten belt and work through. Unlesss there is a big crowd out there with “This is a Jewish/Hindu/Christian or RAW/CIA/Mossad conspiracy”!!!
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Dear Pakistanis,
please dont blame India for this just because Moody sounds similar to Modi…..
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@droid5:
I think Mirza’s being sarcastic here. I have followed his comments, he speaks sense.
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The major contributor to the negative economy is due to power shortage & MUSH is responsible for it- Let me know if any power generation facility has been established from 1999-2008 or 1979-1988? If someone has answer please share. Hence the peoples are wishing to have another MUSH???
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In the life of great nations, these things happen. It’s a law of nature that what goes down goes up. Normal people should continue with persistence, commitment and hard work. No need to be alarmists.
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@1984:
lol, trust me, this would cross many a minds for a second!! By the way, this faded picture of the Pakistan flag looks very appropriate here (sad to see the country in this state).
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last year Pakistan received record foreign currency remittances somewhere arourd $20 billion. Where does Pakistan invest such a huge amount of remittances in dollars and Pounds?
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about time too.
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You guys may not care about this rating, citing this as a western agenda, but the rest of the world does. And it matters since sale of government bonds in international market and hence investment is linked to the rating of this bond. For example France has the second highest rating which means that investors are more likely to invest in their bonds than say Italy or Portugal’s. And we all know how good investment is. What worries me more is the worsening Current account balance. Also can anyone comment on the position of reserves and our net financial position?
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Fire the Finance Minister
The economy is in very big mess and has been ruined in last 4 years
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@Mirza:
Good one… :)
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Either we should get some real Pakistanis to comment here or ET should kindly consider not posting such news. It hardly serves any purpose to see Indians constantly bashing Pakistan over the smallest of matters.
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@ droid5 : Just so you know, Mirza was being sarcastic here ;)
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@Zahra:
We have to control our expenses before it is too late. Where does most of our money go from the budget? More than half goes to defense and debt servicing! There is little left for the civic infrastructure, hence the electricity shortage. In addition very few rich people pay the taxes and steal most of the services.
No third world country with the economy of the size of Pakistan can afford more than half a million army with huge perks, expensive toys, nuclear weapons and missiles. Even most European countries do not indulge in this much luxury and spend money on their civilians. Pakistanis are willing to eat grass but continue to develop hundreds of bomb, they have made their choice. One fact remains they cannot do both at the same time. To those who think Pakistan is having problems, they have no idea the problems have not even started yet. The future of Pakistan has always been worse than its past no matter who has been the ruler.
Regards,
MirzaRecommend
@Mirza:
haha..thats funny Mirza :)
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It looked they almost forgot us for sometime in the aftermath of the Euro Crisis but Zardari was doing bit too much to go unnoticed for too long
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President Asif Zardari of Pakistan should send a letter to USA to underwrite Pakistan Debt.
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10b$ goes to debt servicing; 5b$ to defence out of 39b$ budget.
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@Mirza: Enough with the conspiracy theories. We ourselves are only to blame for our decline
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@ Kaalchakra…… err buddy u got the law of eh…. nature the other way round… I mean what goes up …… unless nature’s been acting differently in ur part of the world… tch tch…
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We miss Musharraf.
The PPP and PMLN lootocracy has already added $23 billion to the debt. When Musharraf tookover Pakistan had $37 billion debt, which remined the same during Musharraf’s 10 year rule. Pakistan had $0.6 billion reserves and Musharraf raised it to $18 billion. This is what lootocracy has given us.
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@Desi:
@Mirza:
haha..thats funny Mirza :)
Dear Desi: that not funny at all
Our hard earn money goes into the pockets of BOOTS
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Pakistan should have actually climbed up one level to BB rating instead of going down one level to Caa1. More than Zardari, the Army and Judiciary combined have caused the most damage for the Country. Every opportunity that could have benefitted to Country was mishandled to serve the selfish goals of Army and Judiciary. Incidences starting from the irrational handling of the Kerry Lugar Bill, Memogate, OBL commission and the Salala have caused serious damage to the Country’s interests.
Pakistanis can cheer up by listening to Religious Scholars like Syed Munawar Hasan and Defense Analysts like Maria Sultan, proudly proclaiming that Amreka is Broke or Amreka has lost the war, or to the 5th generation war theory from Zaid Hamid. No one would try to assess if the Country benefitted or lost by supporting terror groups. May be there is a 9-day miracle cure.
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The fruit of “democracy is the best revenge” we are eating. Will somebody care to question the commerce minister for false statement of achieving the export targets?
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@ASHOK: “last year Pakistan received record foreign currency remittances somewhere arourd $20 billion. Where does Pakistan invest such a huge amount of remittances in dollars and Pounds?
”
It got remittances of $13 billion (not $20 billion). These amounts do help balance of payments but do not helop the budget or fiscal deficit. They are also not available for investment because these go directly to friends/family members accounts of the expatriate who is remitting the money. It does not enter the accounts of Pakistani budget at all.
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@Adnan D.:
We ourselves are only to blame for our decline
Dear Adnan D
There are only FEW, who are responsible, not all of US.
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Please fnd thsf Moody and S&P for various countries. Ofcourse the Moody’s rating here does not include the latest change.
http://en.wikipedia.org/wiki/List_of_countries_by_credit_rating
For Standard and Poor the lowest investment grade is BBB- which is what India has. Pakistan’s current rating is B- Thus Pakistan’s sovereign rating per S&P is 6 notches below that of India. The 5 intervening ratings are B, B+, BB-, BB, BB+
For Moody;s the lowest investment grade is Baaa3 which is what India has. Pakistan’s as of today has moved to Caa1 which is 7 notches below India. The intervening 6 ratings are Ba3, Ba2, Ba1, Baa3, Baa2, Baa1,Recommend
The former PM’s suggestion to print more currency should be implemented immediately and payment made to IMF in Pakistan currency to upgrade its credit rating.
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@ASHOK:
they are invested in safe accounts of swiss banks by ”democratically elected” representatives so that no body threatens democratic ideals.
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Democracy is the best revenge being taken by this govt from our economy for last 4 years.Even Head of state do not shy asking % when any foreign delegation of multi national company comes and meet him for investment in any project.Today, it is not considered as cheating or dis honesty. This approach.makes every soil shameless and rogue.
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So much for the imported finance team of this coalition government. Recommend
@Enlightened: dont comment on economics if you dont know a bit about it……..printing more currency lead to inflation which means higher price for items.IMF dont accept regional currency except dollar and euro.
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The picture is disrespect for the National Flag. I was shocked to see it.
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@Not me:
Incorrect, if you bothered to actually do some research, our economy starting going downwards during the last year of Musharraf’s rule, which was a consequence of earlier policies of Mush, who expanded consumerism and services sector that employes the smallest segment of our workforce. Nonetheless, Zardari’s performance isnt anything better. But, try and do some research then just looking at GDP % growth figures. Mush’s eco performance was also abysmal in his initial years until money started flowing in due to war and Pakistan being the new darling of the west because they needed to use us. See where Mush’s policies have gotten us..60bn worth of economic losses, 35,000 dead, Army’s reputation down the drain etc.
Economy is just not GDP % growth figure, remember that.
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@Enlightened:
And cause a massive inflation and make dollar more expensive hence servicing debt even more burdensome. A very basic course in economics would teach you that, but we know our government doesnt gives a damn about education and comments like yours are the outcome, its not your fault, its our govt’s fault.
Also at everyone ‘democracy is the best revenge’, choose someone else, majority voted for PPP, when majority of middle and up, educated and urban class doesnt bothers to vote, you get likes of PPP. Its YOUR fault.
And its like saying when not in democracy we had better results, like it or not, alot of issues right no are result of Mush’s policies, atleast PPP got that right, nonetheless, the blame is completely on them to not fix those mistakes when taking the responsibility to govern, while Mushy the tough guy hides in London.
And people blaming judiciary, its not CJ’s fault it he picks them up on corruption, he’s not the cause, he’s doing his job for which you pay for, the cause is corruption and unwillingness of the ruling elite to follow the rules that we all follow.
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@kaalchakra:
It’s a law of nature that what goes down goes up
No dude,whatever goes up comes down….and whatever goes down could crash down the earth and maybe even hit the core if proper measures are not taken
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@ayesha_khan: Thanks for the info. I learned something today.
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1984, and Sir, who gave you the right to determine the laws of nature; what is up or down, what comes and goes?
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@kaalchakra:
Well,actually you’re twisting an age old adage and secondly,I’ve studied enough of physics to tell that not everything which goes down can come up….
You can try that with a rubber ball and sand
If you drop the rubber ball,it comes up,while the sand doesnt
So you generalisation that “It’s a law of nature that what goes down goes up” doesnt hold true for all cases….
Hence Proved!!!
(Now,please dont bring Islam and Quran into this as you normally do)
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@Shahid:
right, so that he can fake the number and lie to get a good credit rating.
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The financial team has some familiar faces from Musharraf’s era. The logical conclusion is that the financial team performed better under a General rather than a democratic government.Recommend
@Yusuf:
“Underwrite” our debt?
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@ayesha_khan:
These “rating agencies” have been called “hot-beds of conflict of interest”. That is an excellent description of what they do and how they operate.
Where were these brilliant analysts in the run-up to the Great Recession in the US? Well, they were busy giving AAA ratings to toxic mortgage-backed securities packaged and sold to clients by the gangsters of Wall Street (and who were at the same time betting that they would fail). Please do some reading.Better still look up some of the excellent documentaries produced by pbs.org (public broastcasting service). pbs.org survives through donations from individuals like you and me and have no corporate affiliations.
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@kaalchakra:
How about Nuking the agency for downgrading Pakistan? Or some “strategic asset” may come handy.
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@test:
Thanks for enlightening me but have you heard a word ‘Sarcasm’.
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@Shahid: Do you forget that Musharraf is the reason for all the current problems in Pakistan?
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@ayesha_khan:
Thanks for correcting me.
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@ayesha_khan:
This article is not about India’s rating. It is about Pakistan’s so please dont bring your dislike of India into the discussion. Your comparison shows the mindset of our people who always look for someone worse off to compare themselves and then feel better. Shame on you!!!!!!!!
Look at India’s exports, FX reserves, Per Capita Income and economy overall and see that we Pakistanis dont stand anywhere close to what they have achieved.
We are simply religio-fascist nation that are so delusional that we cant look in the mirror without screaming.
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Look forward to bankruptcy if you do not vote Imran Khan into power in the next free and fair elections.
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Pakistan has money to invest in a new nuclear facility – not inexpensive. Pakistan will have more n bombs. The Army has basically tied the hands of the government to make investments in areas other than Army. It is not a normal practice for IMF to meet with COAS. I have a feeling like North Korea, the world will have to support people of Pakistan.
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