Pakistan’s outlook was dropped from stable to negative by Moody’s Investor Service on Thursday, citing “heightened external vulnerability” and uncertainty about procuring external finance to meet the country’s demands.
“Pakistan’s increased external vulnerability risk and uncertainty about the sovereign’s ability to acquire further external funding to cover its needs drove the move to modify the outlook to negative.
Rising inflation, according to Moody’s, has exacerbated Pakistan’s external vulnerability risk, putting downward pressure on the current account, currency, and already depleted foreign exchange reserves, especially in the context of heightened political and social risk “According to the statement.
Read more: Moody’s improves Pakistan’s banking sector rating, forecasts 1.5% GDP growth
According to Dawn, Pakistan’s “weak institutions and governance strength” had increased uncertainty about the country’s future macroeconomic policy direction, including whether it would complete the IMF’s Extended Fund Facility (EFF) programme and maintain a credible policy path that supports further financing.
Moody’s said it suspected Pakistan would complete its seventh review under the IMF EFF programme by the second half of this calendar year and would maintain its engagement with the Fund, resulting in additional financing from other bilateral and multilateral partners, in explaining its decision to maintain the B3 rating.
“Moody’s believes Pakistan would be able to bridge its financial gap in the coming years. The B3 rating also takes into account Moody’s evaluation of Pakistan’s economy’s size and solid growth prospects, which will give the economy considerable shock absorbency.
“These credit strengths are offset by Pakistan’s shaky external payments situation, weak governance, and extremely weak fiscal soundness, particularly very low debt affordability,” according to the statement.