Moody’s maintains Pakistan’s rating with a stable outlook

External financial assistance, buoyant remittances reduce risk.


Express November 17, 2010

KARACHI: Moody’s Investors Service has maintained Pakistan’s B3 rating and a stable outlook, according to the rating agency’s sovereign report on the country.

External financial assistance coupled with buoyant remittances has bolstered the external payment position, reducing the risk of a balance of payments crisis in the near term, said the report released on the website on Tuesday.

However, volatile political situation and prolonged economic underperformance pose considerable risk, the report said. It also highlighted that tax collection is inadequate while foreign investment is decelerating.

“The outlook is stable and reflects the adequacy of the country’s foreign currency reserves and its manageable domestic borrowing programme, albeit with a continued reliance on deficit monetisation,” says Moody’s vice president and senior analyst Aninda Mitra.

“The government’s debt has grown on account of a considerable amount of external assistance it has received but debt dynamics remain favourable. The key risks to the stable outlook on the B3 sovereign rating comprise a significant loss of macroeconomic stability and a weakening of the external position or a persistent slowdown in growth along with a loss of external support.”

Improvements in domestic and regional political stability, a sustained improvement in external liquidity, decline in government and external debt in relation to government revenue and current account receipts and a strengthening of political, administrative and legal institutions could lead to an upgrade in rating.

Meanwhile, a substantial worsening of domestic politics or a breakdown in alliance with the US, deterioration in the policy framework or investor confidence that results in a sizeable diminution of foreign currency reserves and a further deterioration in fiscal and external balances could lead to a downgrade in rating.

In the previous review on December 12, 2008, Moody’s had revised the outlook on B3 sovereign rating to stable.

Published in The Express Tribune, November 17th, 2010.

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