Moody’s Investor Service downgraded Pakistan’s outlook from stable to negative on Thursday, citing “heightened external vulnerability” and uncertainty about obtaining external financing to meet the country’s needs.
“The decision to change the outlook to negative is driven by Pakistan’s heightened external vulnerability risk and uncertainty around the sovereign’s ability to secure additional external financing to meet its needs.
“Moody’s believes that rising inflation has exacerbated Pakistan’s external vulnerability risk, putting downward pressure on the current account, currency, and – already thin – foreign exchange reserves, particularly in the context of heightened political and social risk,” the statement said.
According to Dawn, the country’s “weak institutions and governance strength” have increased uncertainty about the future direction of macroeconomic policy, including whether Pakistan will complete the International Monetary Fund’s (IMF) Extended Fund Facility (EFF) programme and maintain a credible policy path that supports additional financing.
“Moody’s assesses that Pakistan will be able to close its financing gap for the next couple of years. The B3 rating also incorporates Moody’s assessment of the scale of Pakistan’s economy and robust growth potential, which will provide the economy with some capacity to absorb shocks.
“These credit strengths are balanced against Pakistan’s fragile external payments position, weak governance and very weak fiscal strength, including very weak debt affordability,” the statement said.
